Retirement Savings and Household Wealth: Trends from 2001 to 2004

Abstract

[From Summary] Since about 1980, the proportion of workers who participate in employer sponsored retirement plans has remained stable at about half of the workforce. Over the past 25 years, however, there has been a shift by employers from defined benefit (DB) pensions which pay a retirement benefit in the form of a lifelong annuity to defined contribution (DC) plans, which are more like savings accounts maintained by employers on behalf of each participating employee. One of the key distinctions between a defined benefit plan and a defined contribution plan is that in a DB plan, it is the employer who bears the investment risk. The employer must ensure that the pension plan has sufficient assets to pay the benefits promised to workers and their surviving dependents. In a DC plan, the worker bears the risk of investment losses. The workers account balance depends on how much he or she contributes to the plan and how the plans underlying investments perform.