Half A Chance...

I’ve never played the lottery. But there are days…

I tell myself it’s because I know how remote the odds are, that the rules are too complicated, that they “feed” on the aspirations of people who should be spending their money on “better” things – and even that I don’t have enough “lucky” numbers to bet on consistently. But those are rationalizations.

The simple fact, despite the screaming billboards and nightly news reminders about the size of the latest “mega” jackpot, is that I simply find it inconvenient. Oh, it’s not like I never frequent the convenience stores or even grocery checkouts that these days beg for the cash/credit card that hasn’t yet been put away. I’ve never really regretted walking away from those “temptations.” And yet…    

As an industry, we spend a lot of time focused on a wide variety of considerations that impact the likelihood of having a financially satisfying retirement. But what about those who don’t have access to a retirement plan?

Now, even thoughtful industry insiders have been known to push back on the notion that people don’t have access to a retirement plan. And, in fact, you don’t have to be an industry insider (though it helps) to know that anyone who doesn’t have access to a retirement plan at work can stroll down to your local bank or financial services outlet and open an IRA – heck, these days you can just boot up your computer and do that online. And yet people don’t. This isn’t really a surprise – but even among modest income workers ($30,000-$50,000/year), we’ve seen that workers are 12 times more likely to save via a workplace retirement plan than to open that individual IRA.

Last week, we unveiled a state-by-state analysis that highlighted the coverage gap – that more than 5 million employers in the United States still don’t offer a workplace retirement savings benefit, a generation after the 401(k) plan design was first introduced. And what that means is that more than 28 million full-time workers don’t have an opportunity to save for retirement in a 401(k) – and that doesn’t include more than 23 million part-time workers who don’t have that opportunity.

That is, of course, the coverage “gap” that the so-called state-run automatic IRA programs are designed to close. And, though it’s still relatively early in that particular vein, they do seem to be having a positive effect. In Oregon (whose OregonSaves program has just commemorated its second anniversary), they’re reporting more than 6,856 employers now participating – who ostensibly didn’t offer a plan before – with some 95,704 employees – who, ostensibly, weren’t saving for retirement previously. And if the opt-out rate is high (approximately 30%) compared with the 7-9% rates typical of automatic enrollment plans administered in the private sector, well it not only lacks the support of an employer match (not to mention the support of workplace education or an advisor), but it also has a (still) relatively high 5% default contribution rate, though recent surveys suggest that the default rate standard is rising in 401(k)s.

There are, of course, issues with the emergence of multiple, and potentially contradictory, state-run versions – particularly for employers who draw workers from multiple states. But in just this last year, the program has begun offering traditional IRAs and has been opened to the self-employed, gig economy workers and cannabis businesses. The program is now more than halfway through its statewide rollout, which will be completed by mid-2020, with more new “features and improvements” in the works. Similar programs in Illinois and California are underway, or nearly so – and Rep. Richie Neal (D-MA), Chairman of the House Ways & Means Committee, has previously proposed a federal version. 

Much of the coverage gap can be laid at the door of smaller employers, which arguably have a different focus on such matters than larger organizations. And, sure enough, a 2013 analysis by the nonpartisan Employee Benefit Research Institute (EBRI) found that when you adjust for access to a plan – the percentage participating divided by the percentage working for employers that sponsor a plan – you find that participation rates between larger employers and smaller ones largely disappear. For example, while data indicates that just 16.9% of those full-time, full-year employees who work at smaller employers participate in a plan – that turns out to be about 86% of the 19.5% of workers in that category whose employer sponsors a plan. And that is nearly identical to the participation rate of private-sector employers with 1,000 or more employees.

A few years back I remember hearing a lottery motto, “Gotta be in it to win it.” That’s a motto that those worried about retirement finances should always take to heart.

But if they’re going to have (more than) half a chance, there’s something to be said for improving the odds – by having a chance to “play.”

- Nevin E. Adams, JD

Access "Able"

Though I’ve now spent more than three decades working with employment-based benefit plans, I’ve also worked for some very different employers, ranging from organizations that employed tens of thousands of workers to those that were a fraction of that size. Those organizations were all very different, of course, but they all had at least one thing in common: All offered a workplace retirement savings program.

That’s apparently not as common as one might think, certainly among smaller employers. In fact, a new study from the Employee Benefit Research Institute (EBRI) notes that the probability of a worker participating in an employment-based retirement plan increased significantly along with the size of his or her employer.

How significantly? Well, the EBRI report notes that for wage and salary workers ages 21‒64 who worked for employers with fewer than 10 employees, just 13.2% participated in a plan, compared with 57.0% of those working for employers with 1,000 or more employees. Filtering for those workers who are full-time, full-year, at employers with 1,000 or more workers, two-thirds (66.5%) participate, compared with just 16.9% at employers with fewer than 10 workers.

One is inclined to look for other explanations than employer size alone. Perhaps smaller employers pay less, or hire younger workers (who might also be paid less) — and those factors might play some role. However, the EBRI analysis found that, even controlling for age, workers at smaller employers still had persistently lower levels of participation across the age groups.

Moreover, across various earnings levels, workers at small employers (less than 100 employees) were less likely to participate in an employment-based retirement plan. Indeed, even among workers making $75,000 or more, a considerable disparity was found — just 27% of those in that income category working for the smallest employers participated in a plan, compared with 81% of those working for employers with 1,000 or more employees.

But when you adjust for access to a plan — the percentage participating divided by the percentage working for employers that sponsor a plan — you find that those differences largely disappear. For example, while just 16.9% of those full-time, full-year employees who work at workers participate in a plan. That’s about 86% of the 19.5% of workers in that category whose employer sponsors a plan — which is nearly identical to the participation of private-sector employers with 1,000 or more employees.

A few years back the Maryland Lottery had a simple slogan: “You gotta play to win.” That’s a motto that those saving for retirement should take to heart.

However, when it comes to retirement plan participation, it looks like a lot of those who work for small employers aren’t yet getting a chance to “play.”

- Nevin E. Adams, JD