Contributions to Savings and Thrift Plans

By Bucci, Michael | Monthly Labor Review, November 1990 | Go to article overview

Contributions to Savings and Thrift Plans


Bucci, Michael, Monthly Labor Review


Contributions to savings and thrift plans Participants in employer-sponsored savings and thrift plans who earned $25,000 during 1989 could make annual contributions ranging from less than $100 to more than $6,500 depending upon their plan's administrative restrictions and the employee's chosen rate of contribution. These disparities in allowable contributions exist among all occupational groups, but are even more evident at higher compensation levels.

These findings are from analysis of individual savings and thrift plan provisions studied in the Bureau of Labor Statistics' 1989 Employee Benefits Survey. The survey furnishes data on employee benefit provisions in medium and large establishments in private industries located within the continental United States. The 1989 survey sample represents 109,000 establishments and contains benefit data that pertain to 32 million full-time employees.

Two types of retirement plans were evident in the survey--defined pension plans, which include specific formulas that are used to determine an employee's benefit upon retirement, and defined contribution plans which do not attempt to provide a fixed benefit. Instead, defined contribution plans specify the level of the employer's annual contribution to the employee's individual account. Savings and thrift plans were the most common type of defined contribution plans in the 1989 Employee Benefits Survey, with 30 percent of full-time workers participating in a savings plan that was at least partially financed by their employer. (1) As with most other defined contribution plans, savings and thrift plans are designed to permit the accumulation of funds that may be used for retirement or other future purposes. Final accrual is dependent upon a number of variables, including total plan contributions, investment earnings, and length of participation in the plan.

Savings and thrift plans require a contribution from both the employer and the employee. (2) However, because the employer is not obligation to provide a certain level of benefits, the risk from investments is borne solely by the employee. The result of investment gains or losses is reflected in the final benefit available to the employee.

Presently, the Employee Benefits Survey provides a variety of data regarding the provisions of savings and thrift plans. Included are information on maximum allowable employee contributions, permissibility of pretax employee contributions, employer matching percentages, available investment opportunities, and vesting schedules. (3) The new data on savings and thrift plans presented in this article attempt to determine the average allowable annual contributions to these plans and the actual lump-sum benefit that would be available to an employee upon retirement.

Overview of plans

Perhaps the most important reason establishments form savings and thrift plans is to provide an additional or alternative source of retirement income for workers. Many Americans are leaving the labor force before attaining age 65. At the same time, average life expectancies continue to increase. (4) These two factors have increased the need for sources of income that will sustain individuals after retirment. Savings and thrift plans permit the deferral of employee income and the receipt of matching employer contributions, allowing employees to supplement the more traditional sources of retirement income--defined benefit pensions and Social Security payments. (5) Data from the Employee Benefits Survey show the increasing importance of this type of capital accumulation plan: in 1988, 25 percent of full-time employees in medium and large private establishments participated in a savings and thrift plan, compared with 30 percent a year later.

The provisions of individual savings and thrift plans can be quite disparate. However, all savings and thrift plans follow the same procedural guidelines: they require a basic employee contribution, with minimum and maximum amounts that each employee may contribute annually, frequently subject to employer restrictions. …

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