%20(1).png)
%20(1).png)
The latter half of the 20th century witnessed dramatic changes in the retirement landscape. The once-dominant defined benefit pension plans started to decline, giving way to defined contribution plans like the 401(k). This shift marked a significant transformation in how Americans save for retirement.
This is Part 2 of a 3-part series on the history of American retirement. Missed the beginning? Read Part 1: The Rise of Pensions. Continue to Part 3: Why the Current System Is Not Enough.
Originally published: September 19, 2024
The decline of defined benefit pensions did not begin the moment Congress passed the Employee Retirement Income Security Act (ERISA) in 1974. In fact, the number of single-employer pension plans kept growing for another decade, peaking around 1985. ERISA set new funding, vesting, and fiduciary standards and created the Pension Benefit Guaranty Corporation to insure benefits, largely in response to failures like the 1963 Studebaker plant shutdown, which left thousands of auto workers with partial or no pensions. The real decline started in the mid-1980s and accelerated through the 1990s and 2000s, driven by new accounting rules that put pension liabilities on corporate balance sheets, stricter funding requirements, rising insurance premiums, longer life expectancy, and a more mobile workforce less suited to long-tenure pension plans.
In 1978, Congress passed the Revenue Act, which included a little-noticed provision, section 401(k). The rule was aimed narrowly at clarifying the tax treatment of existing executive cash-bonus plans, not at creating a new retirement savings vehicle, and it sat largely unused for two years. That changed when benefits consultant Ted Benna, working for a Pennsylvania benefits firm, interpreted the law to allow employees to defer part of their salary into a 401(k) and built the first working plan in 1981. The IRS confirmed that interpretation later that year, opening the door for employers nationwide to offer 401(k)s.
The 1980s and 1990s saw explosive growth in 401(k) plans. Employers embraced these plans not only because they reduced financial risk but also because they were easier to administer. Employees, on the other hand, appreciated the control and flexibility that 401(k)s offered. They could choose how much to contribute and how to invest their funds, tailoring their retirement savings to their personal preferences and risk tolerance.
As 401(k) plans became more popular, defined benefit pensions continued to decline. Defined contribution plans overtook pensions in the number of covered workers by the early 1990s, and by the late 1990s they held the majority of retirement plan assets as well. Many companies froze or terminated their DB plans entirely, shifting to defined contribution plans that depended on the amount contributed and the investment performance of those contributions rather than a promised benefit.
Today, the 401(k) is the primary retirement savings vehicle for most Americans. As of 2025, 70% of private-sector workers had access to a defined contribution plan, compared with just 14% who had access to a defined benefit pension. While 401(k)s offer greater control and portability, they also place more responsibility on individuals to manage their own retirement savings, making financial literacy and planning more important than ever.
The fall of defined benefit pensions and the rise of 401(k)s marked a significant turning point in the history of retirement. While 401(k)s provided new opportunities for retirement savings, they also introduced new challenges and risks.
Continue reading: The History of Retirement Part 3: Why the Current System Is Not Enough
This article is for informational purposes only and does not constitute financial, tax, or investment advice. Consult a qualified financial professional before making retirement planning decisions.
Disclosures
The information on this page is provided for educational purposes only and is not intended as investment, legal, or tax advice. It is designed solely to illustrate how longevity-linked investment benefits may work under certain assumptions. Actual results will vary. All illustrations, examples, and case studies are hypothetical and are intended to demonstrate potential scenarios — not to predict or guarantee actual outcomes. They do not represent the performance of any individual investor, portfolio, or account.
Key Assumptions Used in the Illustrations
Life expectancy and mortality projections are based on the most recent Social Security Administration (SSA) tables available at the time of simulation.
In the event of death or early withdrawal, hypothetical scenarios assume that investors who exit early, or their estate in the event of death, may receive 75% of the lesser of the initial investment or current market value, plus 1% for each full year the account was active. Case studies assume standardized market growth of 8% annually and do not incorporate unexpected market volatility, inflation, changes in interest rates, or changes in an investor's personal circumstances.
Simulations may assume a 3% annual early withdrawal rate prior to payout or death. All figures shown are net of fees. No forecast, projection, or hypothetical return should be relied upon as a promise or representation of future performance.
Past performance is not indicative of future results. The 8% annual market growth rate used in illustrations is a standardized assumption for modeling purposes only and does not represent the historical or expected performance of any specific investment. Note that early or voluntary withdrawals by other participants can affect fund performance and the size of distributions, and that a higher-than-expected number of participants reaching payout milestones may reduce the per-participant benefit received.
Savvly's Longevity Benefit is not a bank product, not FDIC insured, not insured by any federal government agency, and not insurance; payout amounts are not guaranteed. Investment values may decline..
Savvly's Longevity Benefit may not be suitable for all investors. Eligibility to invest is subject to qualification requirements and not all investors will be eligible. Investors should carefully consider their investment objectives, risk tolerance, time horizon, and financial situation before investing. See savvly.com/disclosures for current eligibility criteria, fees, risks, withdrawal terms, and fund assumptions.
This content is published by Savvly, Inc. Savvly has a financial interest in the products described and this content should not be interpreted as independent financial research or analysis. Investors should carefully evaluate their own circumstances and consult a qualified financial professional before making any investment decision.
