October 23, 2012
--- Retirees
across all income groups are collecting more retirement income from
employer-sponsored retirement plans than in the mid-1970s. ---
An ICI study, “A Look at Private-Sector Retirement Income
After ERISA, 2011” found that in 2011, 33% of retirees received income—either
directly or through a spouse—from private-sector retirement plans, compared
with 21% in 1975. The median income received by those with private-sector
pension income was $6,300 in 2011 compared with about $4,700 in 1975 (in 2011
dollars). The research examines private-sector retirement income trends since
1974, just after the Employee Retirement Income Security Act (ERISA) was
enacted.
The study also revealed that an increase in DC plan coverage
over time has kept U.S. worker access to private-sector retirement plans steady
since the 1970s. While coverage has been consistent, an increasing number of
private-sector workers have worked for employers that sponsor defined
contribution (DC) pension plans, while the number having worked for employers
that sponsor defined benefits (DB) plans decreased. In 1975, nearly 90% of
active participants in private-sector retirement plans had primary coverage
through DB plans, dropping steadily over time to below 50% by the 1990s. By
1998, 44% of active participants in private-sector retirement plans had
coverage through DB plans.
Coverage by a pension plan does not always result in
retirement income, the study found. The historical prevalence of retirement
income from private-sector DB plans may be overstated by only looking at
pension coverage, rather than receipt of pension income. Many retirees may have
worked for companies that offered DB plans; however, because private-sector
workers change jobs often, the combination of vesting rules and back-loaded
benefit accrual resulted in many retirees getting little or no retirement
income from private-sector retirement plans.
The ICI report also revealed Social Security benefits
continue to serve as the foundation for retirement security in the U.S. and
represent the largest component of retiree income and the predominant income
source for lower-income retirees. In 2011, Social Security benefits were 57% of
total retiree income and more than 85% of income for retirees in the lowest 40%
of the income distribution.
“As policymakers consider retirement savings policies, it is
important that they understand that private-sector pension income has tended to
increase over time rather than decrease. The share of retirees receiving
private-sector pension income increased by more than 50% between 1975 and 1991,
and has remained fairly stable since,” said Peter Brady, ICI senior economist
and coauthor of the report. Further, among those receiving income from
private-sector pensions, the median amount of inflation-adjusted income—which
had remained fairly flat between 1975 and 1991—has increased nearly 40% since
1991.”
The study was coauthored by Brady and ICI associate
economist Michael Bogdan. More information can be found here.
Kristen Heinzinger