For-Profit Private-Sector Employees Fully Embrace DC Plans

Pensions are not entirely a thing of the past, but few employees in the for-profit private sector have access to a defined benefit plan, relying instead on defined contribution plans and other means of personal savings.

While the decline of the defined benefit (DB) pension paradigm is often maligned, new LIMRA Secure Retirement Institute (LIMRA SRI) research shows the defined contribution (DC) system, at least for the for-profit private sector, is doing a decent job of picking up the slack.  

Overall, 84% of workers in this market participate in their DC plan, with 79% having access to an employer match, according to the 2016 LIMRA Secure Retirement Institute Survey of For-Profit Sector Employees. The majority of participants are confident their savings via DC plans will be sufficient to last throughout retirement, but it’s a fairly weak majority, at 54%, LIMRA SRI finds. The finding is also tempered by the fact that more than 25% of workers “plan to work part-time in retirement.”

“More than one-third of workers report not being knowledgeable about financial products or investments,” researchers highlight, suggesting the finding is cause for some concern, given how much more choice is placed on DC plan participants compared with pensioners.

Other findings are more positive about the success of DC. For example, the average current DC plan tenure across all for-profit private-sector plan sizes is an impressive nine years. The median DC salary deferral rate is 8% for plans with fewer than 100 employees, 7% for mid-sized employers (100 to 2,499 employees), and 6% for the largest employers with more than 2,500 workers.

Highlighting the ongoing interplay of DB and DC, the LIMRA research shows participants in private-sector DC plans have access to a DB plan 10% of the time in the greater than 100 employees market, 17% of the time in the 100-to-2,499 employees market, and 23% of the time in the largest employer category. As LIMRA researchers note, this over-representation of pensions for mega employers shines a somewhat more positive light on the relatively low 6% average salary deferral figure.

Looking across the entire private-sector DC participant group, the average balance stands around $135,245. More than seven in 10 (71%) expect future income to be significantly supplemented, if not outstripped, by Social Security benefits. Nearly one-third will also spend from traditional individual retirement accounts (IRAs), and a one-fifth will draw income from Roth IRAs.

Additional survey results are reported here