EBRI Issue Brief
Defined Contribution Plan Dominance Grows Across Sectors and Employer Sizes, While Mega Defined Benefit Plans Remain Strong: Where We Are and Where We Are Going
- This Issue Brief discusses employment-based defined benefit (DB) and defined contribution (DC) pension plans. The number and percentage of individuals participating in private DC plans is increasing relative to the number and percentage participating in DB plans. The total number of participants in all DB plans was
33 million in 1975. Participation increased to 40 million in 1983, and has remained in the 39 million-41 million range since that time. The total number of participants in defined contribution plans increased from 12 million in 1975 to 44 million in 1993.
- Between 1985 and 1993, the net change in the number of primary DB plans was generally greater for plans with fewer active participants. The number of DB plans with 10-24 active participants decreased 55 percent between 1985 and 1993, while the number of DB plans with 500-999 active participants decreased 22 percent. Because most of the decline in primary DB plans occurred in plans with two to nine participants, the decline in the number of employees covered by a primary DB plan was relatively small.
- Research results suggest that, at least for single-employer private retirement plans with at least 100 participants, employers' contributions to DC plans have increased relative to DB plans significantly more than could be explained by employment shifts since 1985. After controlling for the impact of firm size, unionization, and industry composition, the percentage of total contributions devoted to DC plans increased 11 percentage points between 1985 and 1993. While this is an aggregate measure that does not control for the differential impact of various governmental constraints on plan sponsors (e.g., the full-funding limit modifications in 1987), it does provide insight into the degree to which retirement benefits are being financed in increasing measure through the DC approach. A significant portion of this movement may be attributed to DC plans with the 401(k) feature.
- Despite the many changes in government regulation regarding DB plans and the increased prevalence of DC plans, DB plans are still an important part of both the private and public retirement systems. The data in this report show that they are firmly entrenched in large companies and in plans covered by collective bargaining agreements. It is unlikely that many of these plans will be shifted—at least completely—to defined contribution plans.
- During the 1980s and the first half of the 1990s, despite increasing regulatory complexity and cost, reduction in marginal tax rates, increased minimum required contributions for underfunded plans, and tighter maximum contribution limits, large private employers continued to offer DB plans. Policy enacted in the future could provide incentives to encourage sponsorship of DB plans and/or DC plans, or it could discourage plan sponsorship.