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1974 – 2024: Celebrating 50 Years of Protected Retirement Plans

Three eggs on a table with text on each, Retire, 401k, and Pension.
March 2024
1974 – 2024: Celebrating 50 Years of Protected Retirement Plans

Kerry Farrell and Joana Allamani

Although the first private pension plan in the United States was established in 1875, it wasn’t until 1974 that a law was enacted to set minimum standards for pensions in the private industry. Fifty years ago, on Labor Day, Gerald Ford signed into law the Employment Retirement Income Security Act (ERISA). While federal, state, and local laws do not require establishments to provide retirement benefits, ERISA established standards in case they do. This Spotlight on Statistics highlights recent data on retired persons and retirement benefits for private industry workers.

Retirees spent an average $7,505 on healthcare

In 2022, total average annual household expenditures for retirees were $54,975. Retirees spent a higher proportion of their income than average on healthcare, $7,505. Among other expenses were $11,186 for shelter and $8,065 for transportation. Food at home expenses averaged $4,938 for a retiree's household compared with $2,412 for food away from home. Life and other personal insurance plans accounted for $451 of total expenditures.

Social Security and retirement plans provided nearly two-thirds of income for retired persons

In 2022, the average income before taxes for a retired person was $48,780. After taxes, that income dropped to $47,815. Social Security and retirement plans accounted for 65.9 percent of pre-tax income, or $32,168.

Defined contribution plans over four times more available than defined benefit plans

In March 2023, 70 percent of workers in private industry had access to a retirement plan and 53 percent were participating in a retirement plan. Sixty-seven percent and 15 percent of private industry workers had access to defined contribution and defined benefit plans, respectively. Some workers had access to more than one type of plan. There are several key differences between defined benefit and defined contribution plans, namely: portability, cost to employees, who bears the risk, how they are paid out, eligibility requirements, and what is guaranteed.

In the case of defined benefit plans, the benefit amount is guaranteed, typically not portable, employers are normally the only contributors, and it is paid out in regular intervals after an employee retires. Since the defined benefit amount is guaranteed, the risk is borne by the employers. ERISA created the Pension Benefit Guaranty Corporation (PBGC) to protect the benefits in defined benefit plans. Defined contribution plans are also covered by ERISA, but since there is no benefit amount guaranteed, no entity exists to ensure their protection because the amount fluctuates based on the value of the investment and contributions made over the years. Employers and employees can contribute to this plan type and eligible benefits are portable from employer to employer.

Defined contribution plans more popular over time

In 2010, 20 percent of private industry workers had access to a defined benefit plan. By 2023, it dropped to 15 percent. Conversely, 59 percent of private industry workers had access to a defined contribution plan in 2010. By 2023, it grew to 67 percent.

Retirement plan access increased with establishment size

Access to retirement benefits tends to grow as establishment size grows. Eighty-five percent of private industry workers in establishments with 500 or more workers had access to defined contribution plans, and 38 percent had access to defined benefit plans. For establishments with less than 50 workers, the access rate to defined contribution was 52 percent, and 5 percent for defined benefit plans.

Private industry employer costs for retirement benefits by establishment size, March 2023

Retirement benefits more than triple the cost for largest establishments

While access rates vary by establishment size, so does the dollar amount employers pay per employee hour worked. In March 2023, employers with 500 or more workers paid $0.97 for defined benefit and $1.92 for defined contribution plans per hour worked. This accounted for 1.6 percent and 3.3 percent of total compensation costs respectively. Conversely, employers with less than 50 workers paid $0.17 per hour worked (0.5 percent of total compensation costs) for defined benefit plans. They paid $0.55 (1.7 percent of total compensation costs) for defined contribution plans.

Access and take-up rates of retirement plans for private industry workers by occupational group, March 2023

Service occupations have lower retirement plan access

Forty-three percent of private industry workers in service occupations had access to a retirement plan; 5 percent had access to defined benefit plans and 41 percent to defined contribution plans (workers may have access to both types of plans). In management, professional, and related occupations, 20 percent of workers had access to defined benefit plans and 85 percent to defined contribution plans. 

Access rates show how many employees have a retirement plan option available to them. Participation rates reflect the status of all workers, including those without access to a retirement plan. Take-up rates show the percentage of workers with access to a plan who participate in the plan. While only 5 percent of workers in service occupations had access to a defined benefit plan, the take-up rate among those workers was 87 percent. On the other hand, 41 percent of those in service occupations had access to a defined contribution plan. The take-up rate was 56 percent.

Leisure and hospitality industry workers have lower retirement plan access

Among industries, workers in leisure and hospitality had the least access to retirement plans in March 2023. One percent of these workers had access to defined benefit plans and 32 percent had access to defined contribution plans. Financial services industry workers had higher access rates for both defined benefit and defined contribution plans, at 33 percent and 87 percent, respectively.

Employer costs per employee for private industry workers, March 2023

Employer costs for wages and benefits fall behind in leisure and hospitality industry

Employers in the leisure and hospitality industry paid less than the private industry average for employee compensation in March 2023. Employer costs for retirement and savings plans were $0.17 per hour worked in the leisure and hospitality industry compared with the private industry average of $1.39. They also made up a smaller-than-average share of compensation costs. Employer costs for retirement and savings plans accounted for 0.9 percent of total compensation in leisure and hospitality compared with 3.4 percent of total compensation for all private industry workers.

Only 37 percent of the lowest wage workers had access to a retirement plan

As seen in the leisure and hospitality industry, where a lower wage industry provided less retirement benefits, access to retirement plans grew with workers' wages in March 2023. Among all workers in the lowest 10-percent wage category, defined as a worker earning less than $14.00 per hour, 37 percent of workers had access to a retirement plan. Ninety-two percent of workers in the highest 10-percent wage category (workers with average wages of at least $55.29 per hour) had access to a retirement plan.

Defined benefit plan access ranged from 2 percent for the lowest 10-percent wage category to 29 percent for the highest 10-percent wage category. Defined contribution plan access ranged from 36 percent for the lowest 10-percent wage category to 91 percent for the highest 10-percent wage category.  

Employee contribution requirements more common for nonunion workers

Defined contribution plans are the most common retirement plans offered to private industry workers; however not all plans are created equal. Some plans require the employee to contribute towards the plan to receive an employer contribution. For example, an employer may choose to match a percentage of the contributions put forward by the employee. Other defined contribution plans do not require an employee contribution. Instead, the employer makes contributions to all workers, even those who do not contribute. For example, the employer may use a fixed percentage of profits formula or contribute a percentage of employee earnings.

Among workers participating in defined contribution plans in March 2023, 71 percent of nonunion workers were required to contribute compared with 65 percent of union workers. Seventy-one percent of full-time employees participating in defined contribution plans had an employee contribution requirement, as did 64 percent of part-time workers.   

Sixty percent of defined benefit plans were open to new participants in the private industry

Roughly 1 in 5 defined benefit plan participants were in a frozen plan in 2009, whereas in 2023, it increased to 2 in 5. Eighty percent of union workers had access to an open defined benefit plan, while 45 percent of nonunion workers had access to an open plan.

In 2009, BLS started publishing information on frozen defined benefit plans. These plans are closed to new employees and limit the accrual of additional benefits for participants. Any benefit received is calculated as of the date the plan was frozen. In a soft frozen plan, no new employees are allowed to join the plan while benefit accruals may continue for existing participants. In a hard frozen plan, existing participants stop accruing any benefits once the plan is frozen. Any benefit received is calculated as of the date the plan was frozen.

Ninety-four percent of full-time workers were given an alternative to frozen defined benefit plans

When establishments freeze pension plans, they often provide an alternative to the plan. In March 2023, while less than 10 percent of full-time workers were in plans that had no alternatives to frozen plans, 27 percent of part-time private industry workers were in plans without alternatives. By bargaining status, 95 percent of union workers were in plans that provided alternatives to frozen plans and 92 percent of nonunion workers were in plans that had an alternative available.

Defined contribution plans prevalent alternate to defined benefit frozen plans

Defined contribution retirement plans were the most prevalent alternative to frozen defined benefit plans in March 2023. By having defined contribution plans as alternatives for new hires, employers transfer investment responsibility and risk to employees.

Thirty-two percent of all private industry workers were in frozen defined benefit plans that had access to a new defined contribution plan as an alternative. Forty-two percent of all private industry workers were in plans offering the most common alternative, an enhanced existing defined contribution plan. Examples of enhancements to existing defined contribution plans include increasing employer contribution, improving fee transparency, and reducing vesting requirements, among others, to incentivize those affected by a defined benefit freeze.

Sixteen percent were in plans that offered new defined benefit plans. Those in unions were offered new defined benefit plans more often than nonunion workers. Eleven percent were in plans that offered modifications to existing defined benefit plans such as a soft freeze. In some cases, the numbers sum to more than 100 percent, as more than one alternative was available.

More information

Kerry Farrell is an economist in the Office of Compensation and Working Conditions, U.S. Bureau of Labor Statistics. Joana Allamani is an economist in the Office of Employment and Unemployment Statistics, U.S. Bureau of Labor Statistics. For questions about this Spotlight, please email NCSinfo@bls.gov.

This Spotlight on Statistics presents recent data from the Consumer Expenditure Survey (CE) and the National Compensation Survey’s Employee Benefits and Employer Costs for Employee Compensation (ECEC).

The Consumer Expenditure Surveys (CE) collect information from the Nation's households and families on their buying habits (expenditures), income, and household characteristics. The CE defines a retired person as someone who did not work either full- or part-time during the survey period and self-identifies as retired.

Employee Benefits in the United States provides comprehensive data on the incidence (the percentage of workers with access to and participation in employer provided benefit plans) as well as plan provisions.

The Employer Costs for Employee Compensation (ECEC) measures the average cost per employee hour worked for total compensation, and costs as a percentage of total compensation.

This Spotlight highlighted multiple data products. For more information on the concepts in this Spotlight please see the following: