Across all income groups, retirement income from employer-sponsored retirement plans is more prevalent among retirees today than in 1975, when sweeping new retirement plan regulations were enacted, most notably the Employee Retirement Income Security Act, according to a report from the Investment Company Institute.
In 2009, 34% of retirees received income, either directly or through a spouse, from private sector retirement plans, up from 21% in 1975. The median income was $6,000 in 2009, up from $4,500 in 1975 (in 2009 dollars).
“Looking at the entire period from 1975 to 2009, the data show that contrary to conventional wisdom, private sector pension income has become more prevalent, not less prevalent, over time,” said ICI Senior Economist Peter Brady. “Retirement policy discussions often seem to start from the premise that retirees’ pension income has fallen over time. This report refutes that belief and provides some historical context for these policy discussions by examining trends in retirement income from private sector pensions.”
However, more workers today are at a company with a defined contribution rather than a defined benefit plan. In 1975, 87% of participants in private sector retirement plans had primary coverage through DB plans. By 1998, 56% of active participants in private sector retirement plans were covered by a primary DC plan, and 39% had a supplemental DC plan.
“The good news is private sector retirement income has increased over time and, to date, the shift from DB pensions to DC pensions has not led to a decline in private sector pension income,” Brady said.
ICI also reported that Social Security benefits continue to serve as the foundation for retirement security in the U.S. and are the largest component of retiree income for lower-income retirees. In 2009, Social Security comprised 58% of total retiree income, and for those in the lowest 40% of income distribution, Social Security comprised more than 85% of retirees’ income. Even for retirees in the highest income quintile, Social Security benefits represented more than one-third of income.