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January/February 2002, 
Vol. 84, No. 1
Posted 2002-01-01

Not Your Father's Pension Plan: The Rise of 401(k) and Other Defined Contribution Plans

by Leora Friedberg and Michael T. Owyang

The number of workers with a 401(k) plan grew from 7.1 million in 1983 to 38.9 million by 1993. The rapid diffusion of 401(k) and other portable defined contribution plans and the decline in defined benefit pensions represent a major change in pension structure. Old-style defined benefit pensions were designed to give a fixed income after retirement, but only for workers who stayed in a job for 20 or 30 years; workers who left early ended up with little or nothing. Resulting changes in portability, access to pension wealth, and riskiness are altering incentives for job tenure and worker mobility, retirement, and saving both before and after retirement.