Workers more likely to benefit from private-sector plans

By BenefitsPro


By Dan Berman

Workers today are more likely to receive retirement income from private-sector retirement plans than they were before the passage of ERISA in 1974, according to a report by the Investment Company Institute.

“The importance of private-sector DB pensions in providing retirement income is often exaggerated,” the report said. “The time before the emergence of 401(k) plans in 1981 has been characterized by many as the golden age of the golden watch: a time when most private-sector workers retired with a monthly pension check that replaced a significant portion of their pre-retirement income. Against this standard, 401(k) plans are judged to be falling short.”

That “golden age,” the report said, was more myth than fact. Today, a larger percentage (32 percent vs. 21 percent) of people receive retirement income either directly or through a spouse, and the amount received also has risen. Last year, the median annual income per person was $6,300 compared to $4,800 in 1975 (adjusted for 2012 dollars).

Driving home its point even harder is the fact that median household retirement income also increased from 1975 to 2012. Adjusted for inflation, the average household received $7,300 in 1975 and $8,900 last year. The percentage of homes receiving retirement plan income was also up (19 vs. 29).

The Labor Department estimated 87 percent of active participants in private-sector plans in 1975 were covered by DB plans, compared with 44 percent in 1998, the study said. Since 1979 the percentage of workers covered by employee-sponsored retirement remained steady at about half.

The study noted that workers covered by DB plans often don’t collect the full amount of retirement income because they change jobs before becoming fully vested. In addition, leaving an employer early can curtail retirement benefits because of less service time.

Citing Census Bureau data, the institute noted that in 1983 employees ages 55 to 64 had an average tenure of 12 years with their employer. That figure is now 10 years. The tenure for other age groups fell by a similar amount, except in younger workers.

Originally published on BenefitsPro.com