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Portfolios of

own 1.6 percent of shares while the 14.3 per-

Defined Contribution Pension Plans

cent of shareowners earning over $100,000

The rise of the worker capitalist is inextri-

$100,000 and

own 53.9 percent of shares.

cably linked with the rapid and recent substi-

greater increased

From 1989 to 1995, only the smallest

tution of defined contribution (DC) plans,

most rapidly. By

stock portfolios--those valued at $5,000 and

which create individual investors, from

less--declined in absolute numbers. Portfolios

defined benefit (DB) plans, which create indi-

1995, 18.4 million

of $100,000 and greater increased most rapid-

vidual entitlements.

Americans held

ly. By 1995, 18.4 million Americans held stock

Under a defined benefit plan, the employer

portfolios worth $50,000 or more--more than

provides a particular retirement benefit, gen-

stock portfolios

double the 1989 level.

erally a payment of income, to each covered

worth $50,000 or

Those large portfolios did not necessari-

employee. The stipend is fixed, based on how

more--more than

ly belong to persons with high incomes.

long the employee has worked for the com

-

During the 1990s, most of the growth of

pany and how much he has earned. The

double the 1989

stock ownership occurred within defined

employer makes all decisions, including how

level.

contribution plans. In 1996, the Investment

much to contribute to meet his obligation

Company Institute (ICI) and the Employee

and how to invest the funds. Generally, the

Benefit Research Institute (EBRI) devel-

benefit is not portable if the employee

oped a data bank of 2.5 million participants

changes jobs before he is vested; and even if

in some 23,000 401(k) plans. Workers in

he is vested, the pension remains frozen until

their twenties had account balances averag-

retirement. The benefit does not increase or

ing $6,000; those in their sixties had on

decrease based on asset performance.

average accumulated $67,000. Among

Under a defined contribution plan, the

workers with 20 to 30 years of tenure,

employee and (in most cases) the employer

accounts averaged over $100,000. Plan par-

make contributions to an account that the

ticipants with 30 years of tenure averaged

worker owns. The employee generally

over $150,000.

directs the investment of account assets.

These numbers date to 1995. Since then,

The Internal Revenue Service recognizes

most broad market indices have doubled.

DC contributions as deferred income, and

The dispersion of portfolio wealth is clearly

they are allowed, within certain limits, to

accelerating.

accumulate tax free until retirement. The

size of the retirement benefit depends on

how much the employee and employer con-

The Means of Ownership

tributed and how much the investments

returned. The employee's contributions,

and in many cases the employer's, are

Government statistics are inadequate to

portable.

disentangle the means by which Americans

To qualify for tax-advantaged status, a

now own stock, largely because official

DC plan must be widely available to a

measures of financial assets may include

company's workforce, not just to key

stocks, stock mutual funds, bonds, and

employees. Employers must provide mul-

nonstock mutuals. Moreover, the govern-

tiple investment options with varying

ment uses overlapping categories to track

degrees of risk; and they must provide

privately held financial assets. Nonetheless,

extensive information on each, including

an examination of growth trends in defined

historical rates of return, annual fees,

contribution plans, 401(k) plans, mutual

investment goals, and total assets for each

funds, individual retirement accounts

fund. If companies meet these require-

(IRAs), employee stock options, and other

ments, the employer is not held liable for

profit sharing arrangements helps to clarify

losses incurred as a result of the employ-

how the explosion in shareholding

ee's choices.1 4

occurred.

5