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

"Half" Measures

People are often grouped into one of two camps: the optimists, who generally see the glass as half-full, and the pessimists, and who are said to view the glass as half-empty.

One of the most commonly cited data points about retirement is that “only about half of working Americans are covered by a workplace retirement plan.” Drawn from the U.S. Census Bureau’s Current Population Survey (CPS), it’s cited by both those who see the current system as inadequate (or worse), as well as its most ardent champions—in other words, both by those who see the glass as half-full, and those who are inclined to see it as half-empty.

This is a data point that we’ve written about before, and one that was acknowledged in a recent EBRI Issue Brief[1] that explored various demographic and economic factors that affect retirement plan participation. The data point is relatively simple math: the number of workers who say they participated in a workplace retirement plan divided by the total number of workers. But when you take a closer look at the numbers, it’s not really that straightforward—especially since there are various types of workers, and that makes a huge difference in retirement coverage.

Consider that, according to that CPS data, in 2012, a total of 80.5 million workers worked for an employer/union that did not sponsor a retirement plan. However, the EBRI analysis reveals that of the wage and salary workers in this group:

• 8.9 million were self-employed—and thus ostensibly could have started a plan on their own without the action of an employer.
• 6.4 million were under age 21—below ERISA’s minimum-age coverage limit.
• 4.3 million were age 65 or older—beyond what many (and most retirement plans) still consider ”normal” retirement age.
• 32.6 million were not full-time, full-year workers—also not required to be covered by a workplace retirement plan under ERISA.
• 17.0 million had annual earnings of less than $10,000.

Now, many of these workers fell into several of these categories simultaneously, such as being under age 21, having less than $10,000 in annual earnings, and not being full-time, full-year workers. So, as the EBRI analysis explains, once you apply certain commonsense filters for age, annual earnings, work status, and/or employer size, you can get a more realistic perspective.

If you consider the population of wage and salary workers ages 21–64 who work full-year, make $5,000 or more in annual earnings, and work for employers with 10 or more employees, 32.5 million—or 36.4 percent of this population—worked for an employer that did not sponsor a retirement plan in 2012.

Said another way, nearly two-thirds of workers with those characteristics worked for an employer that DID sponsor a retirement plan in 2012. Either way, the population of workers who don’t have access to a workplace retirement plan who might reasonably be expected to participate is considerably different than the simplistic assessment offered by the commonly cited “less than half” data point.

Different people can look at the same data and draw different conclusions: some are inclined to see the glass as “half full,” others look at the same results and say it’s “half empty.”

But none of that matters if you’re looking at the wrong size glass.

Nevin E. Adams, JD

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[1] The November EBRI Issue Brief, “Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2012” is available online here.

"Some" Totals

There’s an old tale about a group of men that are blindfolded and then asked to describe an object (in the story, an elephant, though they don’t know what it is), based on their individual observations. In doing so, each one grasps a different part, but only one part, such as the side, the trunk, the tail, the ear, or a tusk.

Following their individual assessments of what is ostensibly the same object, they compare notes―and are puzzled to find their conclusions about the object’s appearance to be in complete disagreement.

A recent EBRI Notes article¹ examined retirement plan participation through the prism of data from the Survey of Income and Program Participation (SIPP), which is conducted by the U.S. Census Bureau to examine Americans’ participation in various government and private-sector programs that relate to their income and well-being.

Now, as the EBRI analysis notes, the SIPP data have the advantage of providing relatively detailed information on workers’ retirement plans, but SIPP is fielded only once every three to five years. By comparison, the Current Population Survey (CPS), which is also conducted by the U.S. Census Bureau, provides overall participation levels of workers on an annual basis, but the CPS does not provide information on the specific types of plans in which the workers are participating. Another data source is the Bureau of Labor Statistics’ (BLS) National Compensation Survey, which annually surveys establishments’ offerings of employee benefit programs, including retirement plans―but at an employee level it includes information only on occupation, union status, and part-time/full-time work, and no information on age, gender, or race/ethnicity. Consider also that the CPS collects information about anyone who worked at any point in a previous year, while SIPP and BLS ask only about current workers in the month of interest.

As you can see, each of these national (and widely cited) surveys collects data in a different manner, at different times, and has different questions that can lead to different conclusions. Consider the chart below. The top line shows retirement plan participation rates for all workers from SIPP, and the lower line graphs retirement plan participation, also for all workers, from the CPS. While the trend lines generally move in the same direction, the more frequent CPS data allows us to see the more incremental movements―and to see a drop in participation rates in 2000–2002 following the burst of the tech bubble that would be completely missed looking only at the SIPP results. Moreover, relying strictly on SIPP data, one might well be inclined to see an increase in participation rates, rather than the leveling off that we see based on CPS data.²

That said, each survey provides important data that can’t be found elsewhere: CPS has the annual participation data with a complete set of worker demographics, while SIPP has the complete set of worker demographics plus retirement plan types, and BLS has detailed data on establishment characteristics, along with retirement plan type, although with limited worker demographics.

There was nothing inherently wrong in the individual observations made by the three blind men in the story―other than their examinations focused on one particular attribute, rather than appreciating the reality that a truly accurate assessment required looking at ALL the pieces, rather than each in isolation.

Similarly, and as the EBRI analysis concludes, those who would draw conclusions from individual surveys or datasets are well-advised to benchmark those results against other data, lest they conclude that the elephant(s) in the room are different than they truly are.

Nevin E. Adams, JD

¹ See “Retirement Plan Participation: Survey of Income and Program Participation (SIPP) Data, 2012,” online here.

² Another potential limitation of these surveys is that they are based on self-reported information, which is to say they rely on respondents’ recollections, rather than actual administrative plan data or IRS tax records. For SIPP specific results, see, for example, Irena Dushi, Howard M. Iams, and Jules Lichtenstein, “Assessment of Retirement Plan Coverage by Firm Size, Using W-2 Tax Records,” Social Security Bulletin, Vol. 71, No. 2, 2011, pp. 53–65, online here.