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The Coverage of Employer-Provided Pensions: Partial and Uncertain

For most Americans, an employer-provided pension is necessary for a financially secure retirement. Social Security provides a solid safety net, but cannot be the sole pillar of retirement security. It must be supplemented by income from private saving or from an employer-provided pension to provide an adequate standard of living.

The coverage of employer-provided pension plans has never been much above 50 percent, however, and there are remarkable disparities of coverage, with coverage rates for better paid, older, better educated, and white Americans much higher than those of other groups. Coverage rates are also low for part-time workers and employees of small firms.

The fairly constant rate of coverage masks a big shift away from traditional defined benefit plans to 401(k) plans. However, 401(k) plans do not ensure regular or adequate saving, they shift investment risk entirely onto the worker, and they do not encourage annuitization of account balances upon retirement.

This chart book’s analysis is based on the results of the triennial Survey of Consumer Finances. Findings point to the importance of a well-designed program to expand employer-sponsored pension coverage and participation while addressing some of the shortcomings of the 401(k) plan.

Given the urgency of broader and more equitable coverage, AARP is advocating the adoption of Auto IRAs, which are designed to reduce the administrative burden plans pose for small employers and to attract moderately paid workers, and measures like state-assisted saving. It strongly recommends exploring measures to encourage annuitization. (50 pages)