Older Workers More Likely to Have Access to Retirement Plans

The employees most likely to care about retirement are more likely to work at companies that sponsor a retirement plan

The workers are most likely to be focused on saving for retirement probably have access to an employer-sponsored plan and are contributing to it, according to a report released Thursday by the Investment Company Institute. ICI studied data from the Census Bureau and Bureau of Labor Statistics’ March 2012 Current Population Survey and found that almost three-quarters of people “most likely to desire to save for retirement” already have access to a plan. Of those, 93% are contributing.

Who are those retirement-minded people? ICI identified the people most likely to want to save for retirement as older, higher-income workers. Younger workers and those with lower incomes identified other reasons for saving: education funding, a house, an emergency cash fund.

ICI found that half of all workers from 21 to 64 have access to a retirement plan through their employer. Excluding seasonal or part-time workers under 30, access increases to 60%. Among that subset, access for those who earn more than $45,000 (or 45- to 64-year-olds who earn more than $26,000) increases to 69%, 74% when including a spouse’s employer-sponsored plan.

“The probability that an employee works for a firm that sponsors a plan is highly related to the employee’s characteristics,” according to ICI. Workers at companies that sponsor retirement plans are more likely to be older, have higher earnings and work full time all year. For example, 38% of workers in their 20s have access to an employer-sponsored plan, compared with 56% of workers between 55 and 64. Among workers who make less than $15,000 annually, 22% have access to a plan; 73% of those who make more than $64,000 per year have access. Less than a quarter of seasonal or part-time workers had access to a plan, while 57% of full-time, full-year workers did.

“The fact that worker characteristics are related to the employer’s decision to sponsor a plan suggests that worker demand for retirement benefits plays a key role in determining which employers sponsor retirement plans,” according to the report.

The commitment to saving carries through workers at companies of all sizes. Smaller employers were much less likely to offer a plan than large employers: 17% versus 68%. Consequently, participation looks low when considering all small firms. Just 13% of employees at any firm with fewer than 10 workers participates in an employer-sponsored plan. However, when considering only firms that sponsor a plan, participation is similar to the largest firms—78% at firms with fewer than 10 workers and 81% at those with more than 1,000. In fact, the average participate rate for all firms that sponsor a plan was 80%.

ICI argued that Social Security was designed to replace a larger portion of earnings for low-income workers while higher earners use more income from private savings and employer-sponsored retirement plans.

“This is not unintentional; from the inception of Social Security, policymakers understood that Social Security alone would be insufficient for those with higher lifetime earnings and intended for Social Security and employer-provided pensions to work together.”

In light of that, according to ICI, the private-sector pension system should be improved without making drastic changes to a system that “already provides retirement benefits to most of the workers who are likely to value retirement benefits more highly than cash compensation.”

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