When EBRI was founded 35 years ago, I was about six months into a job doing pension accountings for a large Mid-Western bank. At the time, I didn't realize I'd still be working with those kind of issues in 2013 – in fairness, like most recent college graduates, I wasn't really thinking about anything that was 35 years in the future. I had a job, a car that ran, and a reasonably nice stereo in an apartment in the Chicago suburbs that didn't have much else.
My employer had a nice pension, and an extraordinarily generous thrift-savings plan, but those weren't big considerations at the time; I had to wait a year to participate in the latter (pretty much standard at the time), and as for the former – well, you know how exciting pension accruals are to 22 year-olds (even those who get paid to do pension accountings). Turns out, I worked there for nearly a decade – walked away with a pretty nice nest egg in that thrift savings plan (that by then had become a 401(k)), and a pension accrual of $0.00.
At the time, I didn't think much of that – like many private sector workers, I hadn't contributed anything to that pension, and thus getting "nothing" in return didn't feel like a loss. By the time I left my second employer (this time after 13 years), the mandated vesting schedules had been shortened by legislation – but still, the benefit I hope to collect one day (after age 65, the plan had no lump sum option) won't amount to much on an annual basis – and won't be anything like the benefit that plan might have provided, if only I had remained employed there. Instead, like my service with that prior employer, that benefit is frozen in time. That result stands in sharp contrast with the 401(k) balances I accumulated, and that continue to grow, despite having changed employers twice since then.
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Of course, tenure data suggests that my job experience was something of an anomaly – with median job tenure consistently hovering in the 5-7 year range going back all the way to World War II, there were doubtless many private sector workers, even among those who worked for an employer who sponsored a defined benefit pension, who were, for a time, participants in a pension plan, only to see little or nothing come of that participation.
I often hear people say that 401(k)s were "never designed to provide 100 percent of retirement income." Now, arguably none of the legs of that traditional three-legged stool were designed to provide 100 percent, but there's no question that the voluntary nature of the programs, as well as their traditional reliance on the investment direction and maintenance by participants, can undermine the relative contribution of the employer-sponsored plan "leg" to a goal of retirement income adequacy.
However, what often gets overlooked in the comparison with 401(k) is that when you consider the realities of how most Americans work, traditional defined benefit designs were also "not designed to provide 100% of retirement income." Indeed, in many cases, based on the kind of job changes that occur all the time, and have for a generation and more, much less.
In both cases, it's not the design that's at fault – it's how it's used, both by those who sponsor these programs, as well as those who are covered by them.
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