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Retirement Planning > Retirement Investing

More Workers Joining Retirement Plans: EBRI

By Trevor Thomas

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Recent federal data offers heartening news about U.S. workers’ participation in retirement plans, according to a report from the Employee Benefit Research Institute, Washington.

EBRI found increases not only in the number of employers offering retirement plans but also in the percentage of employees who join and who become vested in their employers’ plans. The growth applied to workers in both the private and public sectors.

Among wage and salary workers over 16 years of age in nonagricultural industries, 63% worked for employers or unions sponsoring a retirement plan in 2003, up from 60% in 1998, according to an EBRI analysis of the latest U.S. Census Bureau compensation data.

Among all workers, 48% actually participated in a retirement plan, up from 44% five years earlier.

The vesting rate also was up, with 44% saying they were entitled to at least some pension benefit or lump sum distribution if they left their job, up from 41%.

Some of the vesting improvement was probably due to legal requirements that forced some employers to lower vesting periods, notes Craig Copeland, an EBRI analyst who wrote the study.

But another reason was that defined contribution plans have grown considerably. Copeland points out employees who contribute to their pensions are vested in their own contributions.

He found around 58% of workers identified a defined contribution plan as their primary retirement plan. This was up from 52% in 1998.

In contrast, around 41% said their main retirement vehicle was a defined benefit plan, down from about 46% five years earlier and 57% in 1988.

An average of 79% of those earning $50,000 or more took part in a retirement plan, compared to 45% of those making between $15,000 and $19,999. (Income figures were based on constant 1993 dollars.)

Surprisingly, those in the under-$5,000 bracket showed the most significant increase in participation. In 2003, 13% of those in this lowest income bracket were in a retirement plan, around the same as in 1998 but well up from only 4% in 1993.

Half of employers offered salary-reduction plans such as 401(k)s, EBRI found, up from 46% in 1998.

Employee participation in salary-reduction plans increased to 35% from 29% five years earlier.

For employees in defined contribution plans, the average contribution in 2003 was 7.5% of pay, about the same as in 1998 but up from 6.6% in 1988.

Among industry groups, the public sector had the highest overall employee participation rate, at 74%, up from 71% in 1998. It was followed by mining, at 66%, up from 61%; manufacturing, 64%, up from 60%; and transportation, communications and utilities, at 59%, up from 56%.

The lowest participation rate was in retail trade, at 30%, up from 24%.

An aging work force is one likely reason workers are increasingly moving into retirement plans, notes Copeland. “As workers get older, they are likelier to participate,” he says.

A bigger reason, however, is competition among employers for good workers.

“The percentage of employers offering these benefits is up because more workers are looking for these types of things,” Copeland says.

An executive with a major retirement plan manufacturer says his company’s sales data from more than 45,000 employer clients closely reflects EBRI’s results.

The growth patterns for retirement plans are “reassuring but not surprising,” says the executive, Chris Bowman, vice president of retirement and investor services for the Principal Financial Group, Des Moines, Iowa.

“A lot of people are getting closer to retirement,” he says. “They’re starting to get concerned about how much money they’ll need.”

The recent public debates over the future of Social Security also played a role, Bowman believes. And the industry itself has been a factor, he says, by developing new products that are more appealing to employers.

“We in the retirement industry have done a good job of bringing more and better and more efficient products to market to help employers want to sponsor such plans,” he says.

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