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The last private industry pension plans: a visual essay, by William J. Wiatrowski

Last month the Monthly Labor Review Online, published by the U.S. Bureau of Labor Statistics, included a fascinating article entitled, “The last private industry pension plans: a visual essay.”  (Click here for article.)  The article hammered home what most of us already know is happening to private sector defined benefit plans: they are disappearing.  Among the interesting facts:

Employees Covered by a Defined Benefit Plan in 2011:

Private Sector:  18%
Public Sector:  78%

“Frozen” Plans

In 2009, the BLS began tracking information on “frozen” plans, which are plans that are closed to new employees.  By 2011, 25% of private sector employees covered by a defined benefit plan were in a “frozen” plan.  Among those employees in a frozen plan, 33% are in plans where current participants cannot accrue additional benefits or where accruals are restricted.

Pension Plan Multiplier

In 2010, the median percentage multiplier for employees in private sector plans is 1.6%.  (So the pension formula would be 1.6% x years of service x earnings amount).  Compare that to the public sector in California, where even under PEPRA, new employees receive 2% at 62.  For an employee with 30 years of service, that’s the difference between receiving 48% (1.6 x 30)  versus 60% (2 x 30) of your earnings – an increase of 45%.)

Age for “Normal” Retirement

There has been a pronounced shift to increasing the minimum age for receiving full retirement benefits.  By 2010, less than 20% of private sector employees were covered by a defined benefit plan allowing normal retirement before 62.


So the big question is this: will public sector pensions follow these private sector trends?  I think organized labor is hoping that the enactment of PEPRA will stop the push for further pension concessions, at least for a few years.  With CalPERS reporting a return of 13.26% in calendar year 2012, organized labor may be correct that there may not be another big pension reform push for a while.  However, anyone who has looked at PEPRA knows that it does almost nothing to reduce the unfunded liability in public sector pension plans.  Those of us who have done the math also know that it would take multiple years of 13% returns to even get back to 80% funding, where many plans were prior to 2008.  So I think that smart employers will continue to look at ways to chip away at their pension liabilities.  These private sector trends may offer some ways to do that.

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