The study from the Investment Company Institute (ICI), “A Look at Private-Sector Retirement Plan Income After ERISA, 2012,” found across all income groups, retirement income generated by private-sector retirement plans has become more prevalent—not less prevalent—since the mid-1970s, when the Employee Retirement Income Security Act (ERISA) was enacted.
In 2012, about one in three of retirees received income—either directly or through a spouse—from private-sector retirement plans, compared with approximately one in five in 1975. Among those with income from private-sector plans, the median amount was slightly more than $6,300 in 2012, compared with roughly $4,800 (in constant 2012 dollars) in 1975.
This trend, said Peter Brady, ICI senior economist, who coauthored the study along with Michael Bogdan, ICI associate economist, is due to several factors. First, access to private-sector retirement plans has been fairly steady since 1979. Although it varies with the business cycle, the share of private-sector workers at employers with retirement plans averaged 54% from 1979 (the first available data) to 2012. Though overall coverage has been consistent, an increasing share of private-sector workers has worked for employers that sponsor defined contribution (DC) pension plans, and a decreasing share has worked for employers that sponsor defined benefit (DB) pension plans.
The study also suggests coverage by a DB plan does not always result in retirement income. The historical prevalence of retirement income from private-sector DB plans may be overstated by looking only at pension coverage, rather than receipt of pension income. Although many retirees may have worked for companies that offered DB plans at some point in their career, the combination of vesting rules and back-loaded benefit accrual has resulted in many retirees getting little or no retirement income from these plans.
According to the study report, the importance of private-sector DB pensions in providing retirement income is often exaggerated, with the pre-401(k) period characterized as a golden age of retirement benefits, but “the facts support a different narrative.”
Social Security remains the foundation of retirement security in the United States, with Social Security benefits representing the largest component of retiree income and the predominant income source for lower-income retirees. In 2012, Social Security benefits represented 58% of total retiree income and 87% of total income for retirees in the lowest 40% of the income distribution.