This Issue Brief updates the October 1997 EBRI Issue Brief examining trends in employment-based defined benefit (DB) and defined contribution (DC) pension plans. It includes an appendix on plan design and operational issues to provide basic background on how retirement plans work.
Between 1975, when the Employee Retirement Income Security Act (ERISA) became effective, and 1998, the latest year for which data are available, the total number of private-sector tax-qualified retirement plans more than doubled, from 311,000 to 730,000. The total number of participants in these plans, including active workers, separated vested, survivors, and retirees, rose from 45 million to 99 million over the period, while active participants in these plans increased from 31 million to 52 million.
An increasing number of employers have been offering primary and supplemental DC plans as well as an array of hybrid plans, with the result that the share of qualified DC plans, participants, and contributions has grown substantially, relative to DB plans. Like the growth in the number of private-sector plans, the growth in DC participants has been concentrated primarily among smaller private firms, with DB plans tending to be more prevalent among public- and large private-sector employers.
Among DB plans, the number of plans has decreased since ERISA, while the number of participants has remained fairly constant and assets grew. According to their most recent published report, in 2001 the Pension Benefit Guaranty Corp. (PBGC) insured just over 35,200 DB plans, down from an all-time high of 114,400 plans in 1985.
When ERISA was enacted in 1974, approximately 29 percent of the total private qualified plan assets were held in DC plans. This figure held relatively constant until the early 1980s-when 401(k) plans became available. This share rose consistently to more than 50 percent in 1998, where it remained through 2001.
Suggested explanations why DB plans have been steadily losing ground as the preferred plan type include: government regulation; changes in the work place, such as increased employee and employer appreciation and demand for DC plans; business environment and risk associated with funding and managing pension plans; firm size; the increase in global competition faced by employers in recent years, which has increased the need for more flexibility in plan design; and the successful marketing efforts of consultants and DC plan service providers.
