PLANSPONSOR - February/March 2018 - 18

25 YEARS OF RETIREMENT PLANS
1993
The Status of
Retirement Plans
" DEFINED contribution [DC] plans
are sweeping the nation, " begins an
article in the April 1993 debut issue of
PLANSPONSOR. " But the trend has its
problems-and it is not yet clear whether
anyone can save 401(k) investors from
themselves. "
This story expresses concern about
the retreat from paternalism inherent in
defined benefit (DB) plans. The movement
is leaving employees in charge of
decisions about their contribution levels
and investment allocations. " The age of
empowerment will be viewed as a terrible
age, " predicts one expert in the story.
Although coverage of employees by
defined benefit plans is not as prevalent
as has often been assumed, it is in decline.
The tipping point away from these plans
and toward defined contribution plans has
arrived.
In 2006, the U.S. Bureau of Labor
Statistics will write, in an article on retirement
plan coverage trends, that 32% of
private-sector workers participated in a
defined benefit plan and 35% in a defined
contribution plan in 1992 through 1993.
What explains the shift? The
PLANSPONSOR story cites factors such
as a move from industrial jobs to more
service-based jobs-whose workers tend
to change employers more often-the
decline of unions and the increase in parttime
employment. Also, many American
employers feel squeezed by defined
benefit plans' funding requirements and
want more predictability in retirement
plan expenses.
Most Americans do not seem
panicked that they have entered a " terrible
age " of empowerment, as the story foresees.
Sixty-six percent of American
workers feel very or somewhat confident
they will have enough money to
live comfortably throughout retirement,
according to the 1993 EBRI [Employee
Benefit Research Institute]/Greenwald
Retirement Confidence Survey.
1996
The Small Business Job Protection Act of 1996
THE Small Business Job Protection Act
of 1996 (SBJPA), H.R. 3448, beyond
raising the minimum wage, represents
progress within employer-sponsored
retirement plans.
It offers design-based safe harbor
methods for satisfying the nondiscrimination
tests applicable to 401(k) plans and
SIMPLE [savings incentive match plans for
employees] plans for employers with 100 or
fewer employees. The SBJPA also repeals
Section 415(e) limits that have reduced the
amount that could be contributed to DC
plans if the employer also sponsored a DB
plan for the same employees, and simplifies
the definition of highly compensated
employee (HCE). Further, it repeals fiveyear
income-averaging for lump-sum
distributions, permits postponement of
mandatory distributions until retirement
and allows tax-exempt nongovernmental
employers to offer 401(k) plans.
In signing the act into law, in August,
President Bill Clinton writes in part, " The
Act creates a simplified, 401(k) retirement
plan for small businesses, making it far
easier for such companies to offer pensions
Mid-to-Late 1990s
Evolution in Platform Technology
RECORDKEEPING platforms are
starting to take hold. Think of the transition
to daily asset valuation, moves toward
broader investment availability and the
dawn of online services.
By 1996, when PLANSPONSOR
publishes its second annual Defined
Contribution Services Survey, as it is
originally called, the percentage of plans
offering daily valuation has risen to 75%,
up from 70% the previous year. But some
sponsors express concern about daily
valuation tempting participants to play
the market in their retirement accounts.
A 1994 PLANSPONSOR story on daily
valuation begins with an anecdote about
a large-plan sponsor who voiced that
18 PLANSPONSOR.com February-March 2018
concern at a retirement plan conference.
Daily valuation ran counter to the longterm
investment strategy participants
should have, she told the group. " Many in
the audience stood up and cheered, " the
story says.
That second DC survey also illustrates
recordkeeping platforms' move
away from a lineup of proprietary investments:
A slight majority of plans, 53%,
are offering investment options from
multiple investment managers. The plans
surveyed average 10.5 investment options,
up from 8.6 in 1995.
The growth of 401(k) assets and
corporate executives' increasing focus
on the potential liabilities associated
to their employees. This new plan includes
many of the pension reforms my administration
proposed more than a year ago.
For example, it increases the portability of
pensions, allowing more new workers to
start saving for retirement from their first
day on the job. It cuts the vesting period
for workers in multiemployer plans from
10 years to five, immediately vesting over 1
million workers in their benefits. It repeals
the so-called 'family aggregation rule,'
which limited the retirement benefits of
family members working together in the
same business.
" It allows nonprofit organizations
and Indian tribes to maintain 401(k)
plans for their workers; assures veterans
they will have continued pension coverage
if they return to a civilian job after military
service; and makes pension benefits
safer and more secure for millions of
employees of state and local governments.
The pension provisions in the Act are not
perfect-they provide a smaller share
of benefits to lower- and middle-wage
workers than I proposed. But they are a
significant step in the right direction. "
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PLANSPONSOR - February/March 2018

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