When Congress passed The Revenue Act of 1978, which included a provision that became Internal Revenue Code Sec. 401(k), the U.S. government officially sanctioned tax-deferred salary reductions for contributions to retirement plans.
The Revenue Act of 1978 was a large tax bill that, among other things, reduced income taxes for individuals, estates and trusts for the taxable year beginning in 1979.
Section 401(k) of the law did not fully go into effect until November of 1981, when final regulations were issued. But prior to their issuance, several large employers, including Johnson & Johnson, Hughes Aircraft Co., and Honeywell, began developing and implementing 401(k) retirement plans.
Within two years of the final regulations issued in 1981, surveys showed nearly half of all large firms were already offering a 401(k) plan or considering doing so, according to a historical synopsis of 401(k) plans by the Employee Benefits Research Institute.
In 2014, employers in the private sector offered about 685,000 total pension plans, including all forms of defined contribution and defined benefit offerings, which was a 0.6 percent increase over 2013, according to Form 5500 data recently released by the Department of Labor.
There were 89.9 million total active participants in all pension plan styles—14.5 million in DB plans, and 75.4 million in DC plans.
Total pension assets increased 5.5 percent to $8.3 trillion in 2014—DB plan assets increased 4.2 percent to about $3 trillion, and DC assets increased 6.3 percent to $5.3 trillion.
The following is a snapshot of data gleaned from DOL’s Private Pension Plan Bulletin, which puts today’s private sector retirement plan landscape in a historical context, and examines the prominence of retirement plans by design in today’s marketplace.
1. While the long-term trend in plan design has clearly favored defined contribution and 401(k) plans over defined benefit plans, between 2013 and 2014, growth in DB offerings actually outpaced DC plans.
DB plan offerings grew by 1.6 percent, compared to 0.5 percent for all DC plans, and 1.4 percent for 401(k) plans.
2. There were 534,279 401(k) plans in 2014, and 44,869 DB plans.
3. There were 685,203 plans of all types. The vast majority are sponsored by smaller businesses—about 598,000 have fewer than 100 participants.
4. Of the nearly 534,000 401(k) plans sponsored in the country, 449,671 are sponsored by employers with fewer than 100 employees.
5. About 170,600 small employers with two to nine workers sponsor a 401(k) plan.
About another 137,000 employing between 10 and 24 workers, 83,000 employing between 25 and 49, and 59,000 employing between 50 and 99 workers sponsor a 401(k) plan.
6. Total pension plan contributions were $501.4 billion in 2014, a 2.2 percent increase from 2013.
7. Contributions to DC plans increased 7 percent, to $403.5 billion. But DB plans saw a 13.9 percent, or nearly $98 billion decline in contributions in 2014.
8. Defined contribution plans existed for decades before the actual 401(k) was created in 1978. In 1975, the first year after passage of the Employee Retirement Income Security Act, there were about 311,000 pension plans offered in the private sector.
There were about two DC plans sponsored for every one DB plan.
9. In 2014, of the roughly total of 685,000 pension plans sponsored, there were more than 14 DC plans sponsored for every 1 DB plan.
10. Defined benefit plan sponsorship peaked in 1983, when there were more that 175,000 total plans. From then on, the number of DB plans began their rapid decline.
By 1992, the number of DB plans had dropped to about 88,600. By 2000 it was 48,700, not far from where the number stands today.
11. EBRI’s analysis suggests that when Congress moved in 1986 to replace the defined benefit plan for federal employees with a combination of a less generous DB offer and a generous Thrift Savings Plan, a type of 401(k) plan, the government was effectively rubber stamping the 401(k) model, signaling to employers it was here to stay.
12. DOL’s numbers suggest EBRI’s thesis has merit. In 1986, there were 172,642 defined benefit plans, and almost 545,000 DC plans, or about a one to three ratio of DB to DC plans.
By 1996 the number of DB plans dropped to 63,657. By then, there was about one DB plan for every 10 DC plans offered.
13. In 1984, there were about 17,000 401(k) plans sponsored across the country, covering about 7.5 million participants.
By 1990 there were almost 98,000 401(k) plans, almost 231,000 by 1996, more than 348,000 by 2,000, and almost 534,000 in 2014, accounting for 62.6 million participants.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
