TRENDS IN DEFINED BENEFIT PENSION PLAN

Since the early 1980s, there has been a shift away from defined benefit pension plans in the private sector. The number of PBGC-insured defined benefit plans peaked in 1985 at about 114,000. Since then there has been a sharp decline to slightly more than 35,000 plans in 2001.

This reduction has not been proportional across all plan sizes. Plans with fewer than 100 participants have shown the most marked decline, from about 90,000 in 1985 to 20,500 in 2001. There also has been a sharp decline for plans with between 100 and 999 participants, from more than 19,000 in 1985 to less than 10,000 in 2001.

In marked contrast to the trends for plans with fewer than 1,000 participants, the number of plans with more than 1,000 participants has shown modest growth. Since 1980, the number of PBGC-insured plans with between 1,000 and 9,999 participants has grown by about 1 percent, from 4,017 to 4,070 in 2001. The number of plans with at least 10,000 participants has grown from 469 in 1980 to 809 in 2001, an increase of 72 percent.

The growth in the number of large plans is attributable to two factors. First, the rapid increase in inactive participants (retirees and separated vested participants) has pushed some plans into higher size categories. Second, there has been considerable plan merger activity over the sixteen-year period from 1985 through 2001.

In contrast to the dramatic reduction in the total number of plans, the total number of participants in PBGC-insured defined benefit plans has shown modest growth. In 1980, there were 35.5 million participants. By 2001, this number had increased to about 44 million. (chart showing number of plans insured by PBGC falling from about 97,000 in 1980 to about 35,000 in 2001 while the number of participants with benefits protected by PBGC rose from about 35.5 million in 1980 to about 44 million in 2001.)

These numbers, however, mask the downward trend in the defined benefit system because total participants include not only active workers but also retirees (or their surviving spouses) and separated vested participants. The latter two categories of participants reflect past coverage patterns in defined benefit plans. A better forward-looking measure is the trend in the number of active participants, workers currently earning pension accruals. Here, the numbers continue to decline.

In 1988 there were 27.3 million active participants in defined benefit plans; by 1999 (the latest data available), this number had fallen to an estimated 22.4 million, a decrease of 18 percent. At the same time, the number of inactive participants has been growing. In 1980, inactive participants accounted for only 23 percent of total participants in defined benefit plans. This number had increased to 31 percent by 1988 and to 48 percent by 1999. If this trend continues, by the year 2003 the number of inactive participants will exceed the number of active workers.

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