a monthly annuity defined by a formula involving pay and years of service. These plans are designed to maintain a stable productive work- force as well as ensure employees a financially secure retirement. For generations, almost every

large employer offered a pension as a standard retirement benefit. When Congress enacted the Revenue Act of 1978, its intent was to limit corporate executives from accessing many ben- efits found in cash-deferred pension plans, but the original 401(k) was es- tablished as an additional perk above and beyond existing pensions for se- nior company executives by providing a tax break on their deferred income. By the 1980s, defined contri- bution plans started to become popular when employers and their human resources departments real- ized offering defined contribution plans to employees in lieu of de- fined benefit plans could save their companies a lot of money. So since 1980, private employers increas- ingly have shifted their workers to defined contribution plans — typi- cally 401(k)s.

An individual employee owns and manages a defined contribution plan. Many employers who offer defined contribution plans add com- pany contributions, often matching some level of employee contribu- tion. But no employer contribution is required, and no specific benefit is guaranteed. The employee assumes all investment risk, and the value of the available benefit is always mea- sured by today’s market — a stark difference from the predictable and guaranteed defined benefit plan. Financial blogger John Wasik of

Forbes wrote on the history of the defined contribution system: “The 401(k) plan was never meant to be a mainstream pension plan and, from our perspective, is a poor substitute for one. It’s a voluntary program that was intended to supplement retire-

CHARTS: COLIN HAYES

Fortune 100 Company Retirement Plans 90

62

Total Defined Benefit

37 30

Total Defined Contribution

63 70

1985 10 38

2005 2010 2013

Credit: “Retirement Plans Offered by 2013 Fortune 100” by Brendan McFarland, Insider (Towers Watson Research), November 2013

Defined Contribution Plan Assets by Type of Plan

Other defined contribution plans

403(b) plans and 457 plans 401(k) plans

3,575 2,867 2,474 1,706

482 360 864

500 628

1,739

372 533

1,569

413 763

2,399 4,357 4,010

461 912

2,983 3,372

411 753

2,208

402 862

2,746 4,543 4,499

449 947

3,148

420 938

3,141

4,983 455

1,018 3,510

5,860 525

1,146 4,190

1995 2000 2002 2005 2007 2008 2009 2010 2011 2012 2013 Billions of dollars; year-end, selected years, from the 2014 Investment Company Fact Book

FEBRUARY 2015 MILITARY OFFICER 63

1985 2005

2013 2010