Employer-sponsored retirement plans are providing less retirement income today than in the past, according to a new analysis from the Center for Retirement Research.
And, if this doesn't change, "future retirees will be much more dependent on Social Security than those in the past, which is problematic given the reduced support due to the rising full retirement age and the need to close the program's long-term funding gap," according to the report, which was written by Alicia H. Munnell, Wenliang Hou, Anthony Webb and Yinji Li.
Employer-sponsored retirement plans have shifted dramatically in recent decades from defined benefit to defined contribution plans. CRR's report – How Has The Shift To 401(K) Plans Affected Retirement Income? – addresses how that shift has affected retirement wealth and income during 1992-2010.
The data for this analysis come from the 1992, 1998, 2004 and 2010 waves of the Health and Retirement Study (HRS), a nationally representative survey of older Americans. The sample includes both single individuals and couples ages 51 to 56. A household is classified as having a retirement plan if one or both spouses is currently receiving DB benefits, is covered by a DB pension or participating in a DC plan on a current job, or has DB or DC assets from a past job.
The findings from the Health and Retirement Study show that overall participation in employer plans has declined – from 68% in 1992 to 63% in 2010.
In addition, total wealth from retirement plans can at best be characterized as "flat" over the 1992 to 2010 period, according to CRR.
In 2010, the total median projected retirement income was $20,800, and the mean was nearly $37,000. This is just slightly higher than in 1992, where the median income was $19,542 and the mean was $33,415.
DB income was consistently higher than DC income over the study period, according to the analysis. However, DC income did increase substantially over that time period while DB income remained relatively flat.
In 1992, the median income with a DC plan was $6,465 and the mean was $16,186, compared with $20,531 median income and a $29,414 mean income with a DB plan. In 2010, the median income with a DC plan was $10,698 and the mean was $24,369, compared with a $19,201 median income and a $29,533 mean income with a DB plan.
The shift from DB to DC has also reduced the amount of retirement income per dollar of wealth because DC participants have to pay more for annuities, and annuity rates fell as interest rates dropped, according to the report.
