401(k) Growth Overcomes DB Shrinkage: Form 5500 Data

May 18, 2001 (PLANSPONSOR.com) - The number of private pension plans increased 3% in 1997 to 720,000, the largest percentage increase since 1986. A 15% increase in 401(k) plans more than offset a 7% drop in the number of defined benefit plans, and a 2% drop in non-401(k) defined contribution plans.

However, about 40% of the decrease in non-401(k) DC plans resulted from conversions of ongoing DC plans to 401(k) status.

Of pension covered workers in 1997:

  • 54% were covered only by DC plan(s)
  • 32% were covered by both DB and DC plans
  • 14% were covered only by a DB plan.

Small Stuff

Small employers are much more likely to terminate those programs – both defined benefit and defined contribution – than are medium and larger plans, according to data from the Department of Labor.

Among small employers 96% of those filing final reports for their defined benefit (DB) pension plan in 1997 did so as a termination, compared with just 34% of medium and large plans, according to the 10th edition of the Private Pension Plan Bulletin.  Among defined contribution (DC) cessations, 88% of small plans terminated, versus just 25% in the medium and large categories.  The remaining plans ended due to merger with another plan.

The Form 5500 must be filed with the IRS for each year in which a qualified plan has assets.  The results are based on Form 5500 filings for 1997 plan years, the most recent available from the government.

Participation Rates

The number of active participants in pension plans increased by 4% to 70.7 million in 1997.  Not surprisingly much of this growth came from 401(k)s, which grew to 33.9 million participants, an increase of 10%.

Active participants in non-401(k) DC plans increased just 2% to 14.1 million, while the number of active participants in DB plans decreased about 2%, as it has every year since 1984.

Money Matters

Assets held by private pension plans in 1997 totaled $3.6 trillion, a 13% increase from the year before.  Defined contribution plan assets increased 17% to $1.8 trillion while DB plan assets increased 9% to $1.7 trillion.

1997 was the first year in which DC plan assets exceeded the amount of assets held by DB plans.

According to the report, DB plans have experienced a negative cash flow every year since 1985.  Aging workforces in maturing industries have resulted in a declining ratio of active to retired workers, from 5.5 in 1978 to 2.5 in 1997. 

Benefit payments from plans to retirees, survivors, and terminating employees increased by 9% in 1997 to $232.5 billion.  However, while benefits paid out by DC plans increased 16% to $135.3 billion, benefit payments from DB plans increased by less than 1%, to $97.2 billion.

Contributions to DC plans increased by 11% in 1997 to $148.1 billion while DB plan contributions increased 1% to $36.1 billion. From 1977 to 1997, the percentage of contributions to all plans made by participants increased from 12% to 46%, and from 29% to 55% for DC plans only.

The information in the report was drawn from all private pension plans for which a Form 5500 or Form 5500 C/R has been filed with the IRS for plan year 1997.

The Bulletin is online at http://www.dol.gov/dol/pwba/public/programs/opr/bullet97/cover.htm