In a far-reaching study, ICI reports the sources of retirement income for U.S. workers from 1975 to 2012. Some of the findings are interesting; others seem obvious. Here are a few:
• In 2012, 32% of retirees or their spouses received income from a DC plan, up from 21% in 1975.
• While 90% of workers covered by a retirement received DB payments in 1975, many workers at companies that had a pension plan were not covered because they did not stay long enough to accrue benefits. In response, DBs have relaxed their vesting rules to cover more workers — which has muted the decline in coverage.
• Social Security increasingly has become the main source of retirement income, at 58% of all workers in 2012 (compared with 53% overall) — 85% of those in the lower 40% in income relied on Social Security last year.
If you only read the popular press — and even some industry-generated surveys about the poor performance of DC plans, decreasing DB coverage and the lack of confidence among workers to retire — you would think that we have taken major steps backwards and that DC plans are to blame. Taking the longer view:
• Fewer people than we thought actually received DB benefits, even if they worked at a company offering them.
• DC plans are supplying an ever-increasing percentage of retirement income (which maybe higher if we account for multiple DC plans and IRAs held by retirees).
• Much of the perceived crisis has been caused by increased life expectancy.
DC plans have worked as planned to supplement DB and Social Security benefits, but maybe not as fast as we would like in order to keep up with increasing expectations, the desire to live independently in retirement and longer life expectancies. But the ICI study shows that progress is being made. It also debunks some of the myths about the good old days when everyone was covered by a DB plan. Progress instead of perfection is hard to accept in a culture that wants immediate results and would rather cast blame than take action.
