The Changing Nature of Protected Income in Retirement
The share of US workers covered by a traditional employer-sponsored pension plan has declined dramatically over the past few decades. According to Form 5500 filings (US Department of Labor 2021), in 1975 roughly 75 percent of workers included in private pension plans were in traditional defined-benefit (DB) plans, with 25 percent in defined-contribution (DC) plans. By 2019, even though the total number of pension plan participants had roughly tripled, the fraction participating in DB plans had fallen to less than 25 percent, and the absolute number of participating workers in DB plans had declined. Even some public sector jobs—once the bastion of the traditional DB pensions—are seeing shifts in coverage, especially for newly hired employees (National Association of State Retirement Plan Administrators n.d.).
The shift in pension coverage from DB to DC motivates the focus here on protected income in retirement over time and across population subgroups because DB plans are generally characterized by annuity payouts, whereas DC plans are rarely annuitized. Given the shift in pension coverage from DB to DC, we expect (and in fact find) that the occurrence of protected income is declining over time. We find that realized occurrence of protected income other than Social Security (meaning pension and annuity incomes) at retirement age fell from just over half of those born in the early 1930s to about one-third of those born in the early 1950s, the last cohort for whom we can observe postretirement income.