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August 2003, Vol. 126, No.8
Defining participation in defined contribution pension plans
John Turner, Leslie Muller, and Satyendra K. Verma
Expanding pension coverage has long been a goal of Federal pension policy. In recent years, progress towards that goal has occurred entirely through growth in defined contribution plans. The number of active participants in defined benefit plans peaked at 30.2 million in 1984, and had declined to 23.0 million by 1998.1 During this period, the number in defined contribution plans grew from 30.6 million to 50.3 million.2
The concept of pension participation has been defined different ways. The standard legal concept of "active participation" is whether a participant is "benefiting" under a plan in a given year. For defined contribution plans, this generally means that a participant has received an allocation of a contribution or forfeitures that year—not just that he or she has an account. An exception to this rule is for 401(k) plans, wherein a participant is counted as active if he or she is eligible to make a contribution, whether or not he or she actually does.
We suggest two criteria for measuring pension participation. First, to assess progress in improving pension participation, policy analysts need empirical measures of participation that are consistent with the underlying goal of increasing the amount of retirement income provided through the private pension system. Second, for comparability across plan types, the measure of pension participation for defined contribution plans should be consistent with the measure for defined benefit plans. Concepts that have been developed for defined benefit plans do not always transfer directly to defined contribution plans.
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1 National Compensation Survey: Employee Benefits in Private Industry in the United States, 2000 (U.S. Department of Labor, Bureau of Labor Statistics, and the United States Government Printing Office, 2002).
2 These statistics are from the Form 5500 data that employers—with pension plans having more than one participant—are required to file annually with the Internal Revenue Service and the Department of Labor. Generally, plans with one participant and less than $100,000 in assets are not required to file. See Private Pension Plan Bulletin: Abstract of 1998, Form 5500 Annual Reports (U.S. Department of Labor, Pension and Welfare Benefits Administration, Winter 2001–2002).
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