Tackling Complexity in Retirement Benefits: Challenges and Directions for the NCS
Dworak-Fisher, Keenan, Wiatrowski, William J., Monthly Labor Review
As the retirement benefits landscape has become more complex, it has become more challenging/or the National Compensation Survey to capture it comprehensively; the data presented in this article indicate that the current NCS statistics are still very useful but identify some areas in which improvements could be made
Retirement benefits have long been a prominent component of compensation in America. In 1986, they composed 3.8 percent of all compensation paid to private industry workers, (1) and this percentage has remained relatively stable through the decades: in December 2009, contributions to retirement were 3.4 percent. (2) Yet, beneath this relative stability in compensation share, the retirement benefits landscape has undergone many changes, bringing increased diversity and complexity to the underlying offerings. The BLS National Compensation Survey (NCS) has tried to keep up with this evolution by making appropriate changes as time has gone along, and for the most part it has been successful. But this process entails tradeoffs between continuity and responsiveness, so challenges to accurate reporting will always remain.
This article briefly reviews the evolution of the retirement benefits landscape and the adjustments made by the succession of BLS benefits surveys. It then discusses some of the ongoing challenges faced by the NCS in dealing with new complexity in retirement benefits. One challenge is the increasing number of defined benefit plans that have been "frozen," which raises concerns about measures of benefit access; another challenge is the expanding role of retirement-savings vehicles having no employer contribution, which are becoming a fundamental component of the retirement benefits landscape. After detailing these particular challenges, the article discusses a larger implication of the growing complexity of retirement plans: the increasing difficulty of using statistics that are based on retirement plans (as opposed to people) to understand the experiences of individual workers. We envision an expansion in the outputs of the NCS to include measures tracking the prevalence of various plan features across different types of plans, and we work through an example using microdata from the current survey.
The evolution of retirement benefits
As described in detail by Patrick W. Seburn, pensions in the United States have a long history that dates back to the plans offered by several railroads, banks, and utility companies in the late 1800s and early 1900s. (3) By the 1970s, retirement plans had risen in prevalence to cover about 50 percent of the workforce, (4) and most conformed to the same structure--that of the defined benefit plan. In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) to safeguard the accrued benefits of workers. By adding section 401(k) to the Internal Revenue Code, ERISA also established an additional vehicle for tax-deferred retirement savings through the employer, and soon the number of defined contribution plans began to grow precipitously.
When defined contribution plans first emerged, they were usually offered as supplements to defined benefit plans, which still dominated the landscape. However, this trend soon changed course, and more and more employers offered defined contribution plans as the primary retirement-savings vehicle for their employees. (5) At the same time, many of the extant defined benefit plans were terminated, causing the total number of defined benefit plans to fall. (6) By the mid-1990s, defined contribution plans were the predominant form of retirement-savings vehicle used by private industry workers. (7)
There have also been changes in the nature of retirement benefits within the defined benefit and defined contribution categories. In the 2000s, there was a sharp increase in the number of defined benefit plans that were "frozen"; when plans are frozen, new employees are barred from enrolling, and in some cases employers' contributions end altogether. …