contribution rates and benefits of the u.s. pension system international pension conference fiap and...
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Contribution Rates and Benefits of the
U.S. Pension System
International Pension ConferenceFIAP and the Chilean Pension Funds Administrations
Association
Structure of Contribution Rates
Limitations: Defined Contribution Plans– Pre-tax contribution limit: $10,500– Annual Allocation Limit: $35,000 or
25% of compensation
Structure of Contribution Rates
Limitations: Defined Benefit Plans– Maximum total annual accrued
benefit - $140,000– Minimum funding rules:
• Normal cost + unfunded past service liabilities + investment gains/losses + changes to actuarial assumptions + other items
Structure of Contribution Rates
Other Limitations:– Compensation limit– Nondiscrimination rules– Top-Heavy rules
Structure of Contribution Rates:Trends in Contributions ($
Billion)Year
TotalContributions
DefinedBenefit
DefinedContribution
1977 $47,061 $31,197 $15,864
1981 75,374 46,985 28,389
1986 91,503 33,161 58,342
1991 111,124 30,146 80,978
1996 169,540 35,803 133,737
Structure of Contribution Rates
Current and Future Issues:– Inadequate Savings– Retirement Savings Legislation– Pension Fund Surpluses
Benefits Granted
Defined Benefit Plans– Form of Payment: Life Annuity with
Spousal Benefit– Benefit Formula Based On
• Dollar Amount (23%)• Earnings (67%)• Cash Account (6%)• Percent of Contributions (3%)
Benefits Granted
Defined Contribution Plans:– 90% pay benefits in a single sum
(“lump sum”)– Less than 30% provide an annuity– 40% offer benefits in fixed
installments
Benefits Granted: Amounts Distributed, 1977-1996 ($ Billion)
Year TotalDistributions
DB PlanDistributions
DC PlanDistributions
1977 $22,950 $15,249 $7,702
1981 44,753 27,334 17,420
1986 130,483 67,974 62,509
1991 135,552 71,503 64,048
1996 213,399 96,914 116,485
Benefits Granted
Current and Future Issues:– Non-retirement uses of benefits
(“leakage”)– Will participants run out of
retirement income?
Contribution Rates and Benefits of the
U.S. Pension System
International Pension ConferenceFIAP and the Chilean Pension Funds Administrations
Association