Retires are collecting more from defined contribution plans than they did in the mid-1970s from defined benefit plans, says a new Investment Company Institute study.
In the mid-1970s, the ERISA legislation was passed to allow employer-sponsored defined contribution retirement plans and defined benefit plans began to disappear. Defined contribution plans are often criticized for not providing the security the defined benefit plans provided.
However, ICI, a global association of regulated mutual funds, says retirees now get more money in 2015 dollars from defined contribution plans. The study, “A Look at Private-Sector Retirement Plan Income After ERISA, 2015,” finds that between 1975 and 2015 the share of retirees with private-sector pension income has nearly doubled and that the median income received by those with private-sector retirement income is up by more than 50 percent.
In 1975, when nearly 90 percent of private-sector pension plan participants were covered by defined benefit plans, only 21 percent of retirees received any income, either directly or through a spouse, from private-sector pensions, ICI says. Among those with private-sector retirement plan income, the median amount received per individual was about $5,000 in 2015 dollars.
In 2015, 42 percent of retirees received private-sector retirement plan income, and their median per capita amount of income increased to $7,800, the report says.
“Contrary to popular belief, private-sector pension income has become more prevalent over time, not less prevalent,” says Peter Brady, ICI senior economist and coauthor of the report. “This report refutes the myth that the period before the emergence of 401(k) plans in 1981 represented a ‘golden age’ of pension coverage and income -- a belief that seems to be the basis of many retirement policy discussions.”