2006 Is the Year

Defined contribution plans will be the future of employer-provided savings plans

In 2006 policymakers, the media, and academics have recognized what has been true for some time: personal wealth built because of employer-provided defined contribution plans will be the financial foundation of future retirees. The irritating and distracting conversation about which is better — a DC plan or a DB plan — is over. Soon every non-governmental employer looking to hire high-quality workers will have some kind of defined contribution program for their full-time workers. 

According to DOL Form 5500 data, for decades the number of active workers in private employer DC plans has increased, and the number in private employer DB plans has decreased. In 1989 there were 34 million active participants in DC plans and 27 million active participants in DB plans. In 2001, the most recent year for which Form 5500 data is available, there were 52 million active participants in DC plans and 22 million active participants in DB plans. (This number does not include those with separated vested accounts in plans or receiving retirement benefits.) The disparity is undoubtedly much greater today. 

The shift in retirement assets also reflects this reality. A greater percentage of the retirement assets in the United States are the result of either employer DC plans or individual contributions from current income that are saved in an IRA or used to purchase a deferred annuity. This trend will continue. 

Future retirement benefits will be based upon employer-provided DC programs. Recognizing that permitted us to persuade policymakers to make the retirement provisions of the 2001 Tax Act (EGTRRA) permanent and to break down the barriers to automatic enrollment. The passage of these provisions puts in place the regulatory framework necessary for what will be a significant expansion of DC coverage in the private-employer workplace. 

However, accompanying this recognition will be increasingly intensive scrutiny. For years policymakers, the media, academia, and, yes, the plaintiff’s bar have focused their attention almost entirely on the DB system. Now this has changed; everyone is shifting their focus to the DC system, most visibly through the current attention to the fees being paid out of plans. Not only is the DOL promulgating three sets of regulations dealing with plan-paid fees, reporters are writing numerous articles critical of plan-paid fees, and we have a series of fee-related lawsuits aimed at some of America’s best employers. 

Our work is not done. The structure is in place, but now we have to nurture the system to full adulthood. Not only does this mean a continued search for and publication of best practices, it means protecting the credibility of the system. PSCA is committed to bringing the benefits of partnership in the workplace that are expressed in an employer-sponsored defined contribution program to every American worker. Thank you for being part of the team.

DC Retirement Assets (Federal Reserve, Investment Company Institute)*
	1994	1999	2005
Private DC	$1.16T	$2.45T	$2.84T
403(b), 457	$0.24T	$0.53T	$0.77T
IRA/KEO	$1.06T	$2.65T	$3.72T
Federal Thrift Plan	$0.06T	$0.13T	$0.15T
Annuities (Non Plan or IRA)	$0.52T	$0.88T	$1.33T
DC Subtotal	$3.04T	$6.64T	$8.81T
Total Retirement Assets	$5.91T	$11.68T	$14.23T
Percent of Total Retirement Assets	51.4%	56.8%	62.0%
*This does not include non-457 state and local DC plan assets, which are not broken out in the data separately and would increase the percentage. The $1.33 trillion is included in non-employer plan, non-IRA deferred annuities in the DC totals because the future benefit is conditional on the amount spent.