That’s the conclusion of the latest research study by the Employee Benefit Research Institute (EBRI), which also found that surviving DB plans increasingly offer lump-sum distributions upon separation rather than a guaranteed monthly retirement benefit.
More companies are also offering primary and supplemental defined contribution (DC) plans, and a variety of hybrid arrangements, the EBRI report said. The EBRI report covers 1975 to 2001.
The data shows a striking growth in retirement plans between 1975, when ERISA became effective, and 1998, the latest year for which comprehensive data are available, according to EBRI.
Retirement Plans Double
During the period, the number of private-sector tax-qualified retirement plans more than doubled, from 311,000 to 730,000. The number of participants in these plans -including active workers, separated vested, survivors, and retirees -rose from 45 million to 99 million.
The growth in DC participants has been concentrated primarily among smaller private firms, with DB plans tending to be more prevalent among public and large private-sector employers, EBRI’s report indicated.
The number of DB plans dropped between 1975 and 1998, while the number of total participants remained fairly constant and assets grew.
The number of private DB plans increased from 103,000 (33 million participants) in 1975 to 175,000 (40 million participants) by 1983, and then decreased to 56,000 plans (42 million participants) by 1998, EBRI said.
Data from the Pension Benefit Guaranty Corporation on DB plans indicates a decline to 36,000 DB plans by 2001.
DC Share Nearly Doubles
Relative financial positions of DB and DC plans said much about their continued impact on the retirement market.
EBRI said DB assets grew from $186 billion in 1975 to more than $1.9 trillion in 1998. At the same time, assets in DC plans rose from $74 billion to nearly $2.1 trillion– an increase in the relative share for DC assets from 28% in 1975 to 52% in 1998 of all assets in qualified plans.
Suggested explanations why DB plans are steadily losing ground as the preferred plan type include, according to the EBRI report:
- government regulation
- changes in the workplace such as increased employee and employer appreciation and demand for DC plans
- the business environment and risk associated with funding and managing pension plans
- firm size
- the increase in global competition faced by employers in recent years, which has increased the need for more flexibility in plan design
- the successful marketing efforts of consultants and DC plan service providers.