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Retirement Planning > Retirement Investing

Retirement plan sponsorship, participation grows

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Since the end of the economic recession, a higher percentage of workers are working for employers that offer retirement plans and a greater percentage of them are participating in the plans, according to a new report by the nonpartisan Employee Benefit Research Institute.

The data in the report are from the U.S. Census Bureau’s latest Survey of Income and Program Participation (SIPP) on retirement plan participation, covering December 2011 to March 2012. The full report is published in the August EBRI Notes, “Retirement Plan Participation: Survey of Income and Program Participation (SIPP) Data, 2012.”

In 2012, the EBRI report shows, 61 percent of all workers age 16 or older worked for an employer or union that sponsored a pension or retirement plan for its employees. That’s up from 59 percent in 2009, but still below the 2003 high of 64 percent.

In addition, workers participating in a retirement plan increased to 46 percent in 2012, up slightly from 2009 (45 percent) but below the level measured in 2003 (48 percent).

The vesting rate (the percentage of workers who say they were entitled to some pension benefit or lump-sum distribution if they left their job) stood at 43 percent in 2012, up from 24 percent in 1979.

“This increase is largely due to the increased number of workers participating in defined contribution retirement plans (such as 401(k) plans), where employee contributions are immediately vested, and the faster vesting requirements in private-sector pension plans established since 1979,” the report notes.

More than three-quarters (78 percent) of workers surveyed considered defined contribution (401(k)-type) plans to be their primary retirement plan. This is up substantially from prior years in which this question was asked, including:

  • 2009 (60 percent)
  • 2006 (67.1 percent)
  • 2003 (57.7 percent)
  • 1998 (51.5 percent)
  • 1993 (49.8 percent)
  • 1988 (25.8 percent)

The report adds that defined benefit (pension) plans were the primary plan for 21.1 percent of workers in 2012. Reflecting the shift from defined benefit plans to defined contribution plans, this figure represents a significant decline from prior years, including:

  • 2009 (39.1 percent)
  • 2006 (30.9 percent)
  • 2003 (40.5 percent)
  • 1998 (46.3 percent)
  • 1993 (38.2 percent)
  • 1988 (56.7 percent)

Unfortunately for workers who have experienced this migration, they no longer enjoy the higher performance of defined benefit plans. A recent survey by Towers-Watson reveals that employer-sponsored pension plans outperformed defined contribution plans in 2011 by nearly 3 percentage points.

EBRI Analyst Craig Copeland writes that while the worker participation rates in salary reduction plans (such as 401(k)s) have been rising, the average employee contribution to those plans dropped in 2012 (6.7 percent of salary) from 2009 (7.4 percent of salary).

“This is at least partially driven by the growth of automatic enrollment in 401(k) plans, which tend to bring in more first-time, lower-income participants, but often at lower contribution rates,” he states.


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