Economic snapshot | Retirement

Slow growth for pension coverage

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A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for May 15, 2002.

Slow growth for pension coverage
Since the early 1980s, policy makers have been trying to increase private pension coverage. As traditional defined-benefit plans became less prevalent, a new breed of pension plan-the so-called defined-contribution or personal account type plans-became more popular. Most of these plans, in particular 401(k) plans, are tax advantaged, either by allowing pre-tax contributions to the plan or untaxed distributions from such plans. Currently, the federal government is expected to subsidize defined-contribution and defined-benefit plans with more than $100 billion in foregone tax revenue in order to improve private pension coverage. However, pension coverage, or the number of households that had at least one of these plans, barely budged over time (see figure below).

Share of households covered by private pension plans

Among households close to retirement (i.e., those headed by a person aged 47 to 64), 73.7% were covered by a pension plan in 1998, an improvement of only 3.5 percentage points in pension coverage compared to 1983. At this rate, it will take 113 years to achieve pension coverage for all households. The government clearly has made a commitment to improving retirement security for all working families as witnessed both by the continued support for Social Security and the large public subsidies for individual accounts. However, public policy needs to explore new ways to improving coverage. Alternatives may include mandatory coverage or at least added incentives for employers to offer their employees some type of pension coverage.

This week’s Snapshot by EPI economist Christian Weller.

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