The Pension Coverage Problem in the Private Sector

Pension discussions in the last few years have focused primarily on the financial health of state/local plans or on the shift from defined benefit to 401(k) plans in the private sector. Often forgotten is that while coverage at the state/local level is virtually universal, only 42 percent of private sector workers age 25-64 have any pension coverage in their current job. As a result, more than one third of households end up with no coverage at all during their entire worklives and others, who move in and out of coverage, end up with inadequate 401(k) balances. This brief proceeds as follows. The first section describes the pension coverage problem in the private sector. The second section explores the implications of the coverage gap. The third section presents policy options to address the gap. The key finding is that, absent a government initiative to create a new tier of retirement saving, pension coverage is unlikely to increase and many – both with and without 401(k) plans – will end up with inadequate retirement income.