How Important Are Private Pensions?

Introduction

Employer-provided pensions play an important role in assuring a comfortable retirement. In 1992, they accounted for about 20 percent of the total wealth of middle-income households aged 51-61, second only to Social Security. However, many workers still lack pension coverage. After increasing sharply in the post-World War II period, the percentage of the private sector workforce covered by an employer-sponsored pension plan at any given point in time has remained around 50 percent since the 1970s. This constancy obscures two major changes, however. First, pension coverage has increased for women and declined for men, primarily reflecting the increased earnings and labor force participation of women and a decline for men in union membership and employment in large manufacturing firms. Second, a major shift has occurred in the types of plans from defined benefit to defined contribution. Defined benefit plans generally provide retired workers with a set amount based on their salary history, while benefits under defined contribution plans depend on the accumulated amount in a worker’s account. The shift to defined contribution plans reflects employment trends as well as conversion of plans…