It is not surprising that the adoption of defined benefit plans (DBP) has dwindled to 11 percent as of 2017 according to a study (Tracking the Shift in Private-Sector, Employment-Based Retirement Plan Participation From Defined Benefit to Defined Contribution Plans, 1979-2017) performed by the Employee Benefit Research Institute (EBRI).
What is a Defined Benefit Plan?
Defined Benefit Plan, also known as a traditional pension plan, promises the participant a specified monthly benefit at retirement. Often, the benefit is based on factors such as the participant’s salary, age and the number of years he or she worked for the employer. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service.
More Findings From the EBRI Study
- Participation in defined benefit (DB) plans has decreased from 38 percent in 1979 to 11 percent in 2017
- Instead, more workers are participating in defined contribution (DC) plans which drastically increased from 17 percent to 46 percent.
Solo 401k Plans Fall Under the DC Umbrella
We are not surprised to find that participation in defined benefit plans has gone down. Many of our solo 401k clients have been transferring their former employer defined benefit plans to their solo 401k plans, which falls under the DC category, over the past 10 years.