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1 1 (December 4, 2024)

handle is hein.crs/govermt0001 and id is 1 raw text is: Con re &on I flesedrch Service horujig Aecj I ive le a~m 'e1914 0 December 4, 2024 Types of Private Sector Defined Contribution Plans Back round A pension is an employer-sponsored benefit that helps workers prepare for their financial security in retirement. The two types of employer-sponsored pension plans are those (1) that provide a regular monthly payment during retirement, known as defined benefit (DB) plans; and (2) in which employee and employer contributions and related earnings accumulate in participants' accounts and are eventually available as retirement income, known as defined contribution (DC) plans. Over the past several decades DC plans have become more common in the private sector, while DB plans have become less common. The number of active private sector DC plan participants increased from 11.2 million in 1975 to 92.6 million in 2022. In the same period, active participants in private sector DB plans decreased from 27.2 million participants to 11.3 million. This In Focus profiles the types of DC plans, the number of plans, the number of participants, and the dollar amount of assets in these plans. Data in this In Focus illuminate the concentration and scale of participation and assets across DC plans. This may be helpful information for Congress to have when potential changes to policies affecting DC plans are under consideration. While this In Focus is limited to private sector pension plans, public sector employers also provide retirement benefits, including both DB and DC plans, to their employees. Nearly all private sector plan sponsors must file annual publicly available disclosures called a Form 5500 Series report. This disclosure includes information such as plan features, number of participants, and assets. CRS tabulated the DC plan characteristics using the most recently available Form 5500 microdata published by the Department of Labor (DOL), representing 801,371 DB and DC plans in 2022. DC plans accounted for 754,862 plans, or 94.2% of the plans in the dataset. There were 121.3 million total participants enrolled in DC plans. About 92.6 million of these participants were active (i.e., eligible for the plans, even if they choose to not make contributions). The remaining (non-active) participants were retired or separated and receiving (or eligible to receive in the future) benefits from the plans. DC accounts held $8.1 trillion in assets in 2022. Depending on an individual plan's structure, contributions come from employers, employees, or both. The Internal Revenue Code (IRC) places annual limits on the amount that employees and employers can contribute to DC accounts. Employee contributions, called elective deferrals, are limited to the lesser of $23,000 or the employee's wages in 2024. Employer contributions can match employee contributions, be made at the discretion of the employer (typically profit-sharing contributions), or be required by the plan's structure (called nonelective contributions). The overall contribution limit for employee and employer contributions is $69,000 in 2024. Employees ages 50 and over are permitted to contribute an additional $7,500 in 2024. These additional contributions are called catch-up contributions and do not count toward the elective deferral or overall contribution limits. Beginning in 2025, employees ages 60-63 will have a higher catch-up limit: the lower of $10,000 or 150% of the regular catch-up amount. Types Of C Pans DC plans have a variety of structures, allowing employers to offer a type suitable for the characteristics of the company and its employees. Examples include profit- sharing plans, 403(b) plans, and employee stock ownership plans (ESOPs). While the 401(k) plan is a well-known retirement benefit, it is actually not a separate plan but a feature of DC plans. Profit-sharing plans are the form of DC plans that most frequently feature a 401(k) component. Other plans with 401(k) components include ESOPs, money purchase plans, target benefit plans, and stock bonus plans. Profit-Sharing Plans About 97% of DC plans are profit-sharing plans. In a profit- sharing plan, an employer may-but is not required to- make contributions to employees' accounts. Employers have a variety of options regarding the structure, frequency, and amounts of these discretionary contributions. Employee contributions (elective deferrals) are not allowed in a profit- sharing plan unless the plan also includes a 401(k) component. Table 1 indicates that nearly 94% of profit- sharing plans have 401(k) components. While many 401(k) plans match a portion of employees' elective deferrals, fewer have employer profit-sharing contributions. Table I. Selected Characteristics of Profit-Sharing Plans in 2022 Assets Number Participants (Millions of Type of Plans (Thousands) Dollars) All Profit- SArin Plan- 729,833 107,634 $7,087,399 Sharing Plans With 401(k) Cmoe 401(k 685,676 101,677 $6,722,319 Component Without 401(k) Comonnt 44,157 5,956 $365,080 Component Source: Calculated by CRS using the Employee Benefits Security Administration (EBSA) Private Pension Plan Bulletin and Private Pension Bulletin Data for the 2022 plan year.

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