Economic Snapshot | Retirement

Not your father’s pension plan

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

Snapshot for August 30, 2000

Not your father’s pension plan
Employer-provided pension plan coverage has widened in the 1990s, perhaps due in large part to the expansion of 401(k) and other “defined-contribution” pension plans. As opposed to defined-benefit plans, which guarantee a worker a fixed payment in retirement based on pre-retirement wages and years of service, defined-contribution plans consist of annual employer contributions that are often supplemented by employee contributions. The worker’s retirement income depends on his or her success in investing these funds, and investment risks are borne by the employee rather than the employer. Therefore, the shift from traditional defined-benefit plans to defined-contribution plans represents an erosion of pension quality.

As the graph shows, the share of active pension plan participants (workers and retirees) who rely on defined-contribution plans as their primary pension income rose from 13% in 1975 to 42% in 1997.

Share of pension participants primarily in defined contribution plans, 1975-97

This week’s Snapshot by EPI Vice President Lawrence Mishel.

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