The number of private pension plans increased 3% in 1997 to 720,000, the largest percentage increase since 1986. The growth in plans resulted from a 15% increase in 401(k) type plans to 265,300. This more than offset a 7% decrease in defined benefit (DB) plans to 59,500 and a 2% decrease in non-401(k) defined contribution plans (DC) to 395,300. About 40% of the decrease in non-401(k) DC plans resulted from conversions of ongoing DC plans to 401(k) status.

The number of active participants in pension plans increased by 4% to 70.7 million in 1997. The overall increase was led by very strong growth in 401(k) plan enrollment, which increased by 10% to 33.9 million. Active participants in non-401(k) DC plans increased 2% to 14.1 million. DB plan active participants decreased 2% in 1997 to 22.7 million. The number of active participants in DB plans has decreased every year since 1984, by an average of about 2% per year.

Assets held by private pension plans in 1997 totaled $3.6 trillion, a 13% increase over 1996. Defined contribution plan assets increased 17% to $1.8 trillion while DB plan assets increased 9% to $1.7 trillion. 1997 was the first year in which DC plan assets exceeded the amount of assets held by DB plans.

Other findings from the Form 5500 series reports filed for 1997 plan years are summarized below:

  • While the number of small DB plans has decreased every year since 1986, and the number of medium and large DB plans has decreased every year since 1992, the primary reason for the decrease differs between the two groups. Among small plans filing final reports in 1997, 96% terminated and 4% merged with another plan. Among medium and large plans filing final reports, 34% terminated and 66% merged with another plan.

  • DC plans filing a final report in 1997 followed a similar pattern, with 88% of the small plans terminating and 12% merging, compared to 25% of medium and large plans terminating and 75% merging.

  • Among pension covered workers in 1997, about 54% were covered only by DC plan(s), 32% were covered by both DB and DC plans, and 14% only by a DB plan.

  • About two-thirds of pension covered workers (and about one-third of all private sector workers) participated in a 401(k) type plan in 1997, either as a primary or supplemental plan.

  • Most of the increase in the number of 401(k) type plan participants during the mid-1990s has been in firms providing pension coverage only through a 401(k) plan. For example, in 1997 an estimated 49% of 401(k) plan enrollees worked for firms sponsoring only 401(k) plans, an increase from 46% in 1996 and 44% in 1995.This pattern is in contrast to the experience during the 1980s, where much of the growth in 401(k) plan participation resulted from the adoption of 401(k) plans (or conversion of existing DC plans) by medium and large firms to supplement DB plans.

  • Seventy-eight percent of 401(k) type plans, covering 83% of the active participants, and holding 83% of the assets, provided for participant direction of investments of either all assets or assets based on employee contributions.

  • Among plans with 100 or more participants, DC plans achieved a 19.3% aggregate rate of return (investment earnings and appreciation) in 1997, with additional asset growth arising from a positive cash flow of $9.9 billion (contributions minus benefit payout and administrative expenses). Defined benefit plans had a 16.8% aggregate rate of return in 1997 and a negative cash flow of -$67.8 billion.

  • DB plans have experienced a negative cash flow every year since 1985. Compared to DC plans, DB plans are more likely to cover workers in many manufacturing and other mature industries with stagnant employment growth. Aging workforces in many of these industries have led to a declining ratio of active to retired workers, from 5.5 in 1978 to 2.5 in 1997.

  • Aided by a $21.1 billion positive cash flow, assets held by 401(k) type plans continued to increase at a more rapid rate (19%) than other types of pension plans. The aggregate rate of return for medium and large 401(k) type plans in 1997 was 18.2%, or slightly higher than the overall average of 17.9% for all pension plans.

  • Benefit payments from plans to retirees, survivors, and terminating employees increased by 9% in 1997 to $232.5 billion. Benefits paid out by DC plans increased 16% to $135.3 billion and benefit payments from DB plans increased by less than 1% to $97.2 billion.

  • Contributions to DC plans increased by 11% in 1997 to $148.1 billion while DB plan contributions increased 1% to $36.1 billion.

  • A major consequence of the shift in the pension system from DB to 401(k) plans has been a parallel shift in the financing of pension benefits from employers to employees. From 1977 to 1997, the percentage of contributions to all plans made by participants increased from 12% to 46%. Among DC plans, the share of total contributions made by participants increased from 29% to 55% over the 1977-97 period.

  • Of total employer and employee contributions made to 401(k) plans, 66% were made by employees. For workers participating only in a 401(k), 62% of contributions were made by employees compared to 69% for workers participating in both a 401(k) plan and another plan sponsored by their employer.

  • ESOPs, after achieving a rate of return in 1996 (18.4%) that was well above the average for all pension plans (14.9%), attained a 17.0% rate of return in 1997, compared to the 17.9% average for all pension plans.


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