New Trends in Pension Benefit and Retirement Provisions

Private sector pension plans have undergone substantial change in form and structure in the United States over the last two decades. This paper explores and evaluates these changes using information on pension plan characteristics gathered by the U.S. Department of Labor (DOL) since 1980 in their periodic Employee Benefits Survey (EBS) of medium and large establishments. We also discuss how future data collection efforts could be improved to better measure key changes in the form and design of employer-sponsored pensions. Key findings are as follows: Many aspects of defined benefit plans changed over time. For example, vesting rules were loosened; plans eased access to normal retirement; and pension benefit formulas moved toward final rather than career earnings, with increased weight on straight-time pay. In addition, these plans became more integrated with social security; at the same time, the form of social security integration changed substantially. The evidence also indi6ate that defined benefit plan replacement rates fell over time and benefit caps limit years of service counted in the retirement formula. In addition, disability benefit provisions grew more stringent; and participants were increasingly permitted to take a lump sum from their defined benefit plan. Defined contribution plans also have evolved over time. Here, plan participants were granted greater access to diversified stock and bond funds, and fewer were permitted to invest in own-employer stock, common stock funds, and guaranteed insurance contracts. Participation and vesting rules appear most lenient for workers in 401(k) plans; generally employees must contribute a fraction of their pay to their plans rather than relying only on employer contributions; and employee access to pension fund assets fund assets prior to retirement is growing.