T-179 Other Data Endnotes Employment-Based Retirement Plan Participation Other survey s exist on em ployme nt-based retirement plan offering and employee participation. The 1 This testimony for the most part is based on Craig Copeland. “Employment-Based Retirement Plan Participation: National Compensation Survey, conducted by the U.S. Department of Labor’s Bureau of Labor Statistics By Craig Copeland, Ph.D. Geographic Differences and Trends, 2012.” EBRI Issue Brief, no. 392 (Employee Benefit Research Institute, (BLS) found in March 2013 that 49 percent of private-sector workers participated in an employment- 5 No Senior Research Associate, Em vember 2013). The Current Populat ploy ion Su ee Benefit Research Ins rvey results include combin titute (EBRI) ed participation in both defined benefit and based retirement plan. Dushi, Iams, and Lichtenstein (2011) used Survey of Income and Program ERISA Advisory Council defined contribution plans. Copeland (2013) has a discussion of the differences between these plan types. Participation (SIPP) data matched with tax records and found a 5-percentage-point-higher level of 2 participation than what the SIPP responses indicat See the Data section of Copeland (2013) op. cit. for a di ed. Consequently, there are iss scussion of the comparison of Cu ues with drawing rrent Population Survey 6 Introduction data with other data sources on retirement plan participation. Also see the other data section in this testimony. This conclusions from certain individual responses to questions on retirement plan participation. Others have U.S. Department of Labor is an ongoing discussion of what is the correct participation level, which is not the point of this article. Instead, the suggested that the “correct” level may even be 10 percentage points above the CPS level, but the This testimony begins by examining the level of participation by workers in employment-based pension strength of the Current Population Survey--the individual detailed demogra 1 phic information—is used to show the significant differences between employees by age and the size of their employer remain. Furthermore, or retirement plans focusing primarily on private sector workers, based on the U.S. Census Bureau’s relative differences of participation across the demographics as well as the identification of those demographic SIPP was able to provide an estimate of if a worker had ever participated. For those ages 51-60, 72 Current Population Survey (CPS). From these data, baseline results on participation in employment- groups associated with lower participation. Hearing on: 7 2 percent of workers had participated at some point through that age. based retirement plans can be established. 3 The term sponsorship rate is defined as the percentage of workers in the specified work force who worked for an employer or union that sponsored a plan in a given year for any of its employees, though not necessarily for the Trends Overall Participation Levels worker in question. The term percentage of workers participating in a plan is not synonymous with the standard LIFETIME PARTICIPATION IN PLANS The trend in the percentage of workers participating in an employment-based retirement plan has been retirem Among the 156.5 m ent plan term pillion articipAm atioericans who worked i n rate, which is generally un n 2012 de, 76.0 m rstood to mean illion worked the percen for em tage oploy f eligers or uni ible workers ons who essentially particip stable from ate in a plan. 1987 to 2012. T In contrast, the term he wage and s participati salary on level workers ages 21-64 or percentage particip participation l ating refer to the evel went fraction that sponsored a pension or retirement plan, and 61.6 million participated in a plan. This translates into a o from f the 39.8 percent in 198 work force participatin 7 t go a 39. plan, 1 percent in 20 regardless of p 12. lan Th elig e percentage ibility. Conseq participating uently, particacross each dem ipation rate is not used. ographic sponsorship rate (the percentage of workers working for an employer or union that sponsored a plan) of 3 4 category was similarly stable from 1987—2012. Furthermore, the magnitudes between the categories of 48.6 percent and a participation level of 39.4 percent. Eliminating the self-employed and focusing on the A worker who is at least 21 years of age, has one year of tenure, and works more than 2,000 hours in a year, in June 17, 2014 the demographic variable for the most part were also relatively stable. The one significant exception to private sector, 39.1 percent of the private-sector wage and salary workers ages 21-64 participated in an general, must be covered by an employer who offers a private-sector retirement plan to its workers (IRC Sec. 401(a) the overall result was the closing of the gap in the participation levels between male and female workers. 26). Typically, public-sector employers follow similar rules, despite not being governed by all of the same statutes employment-based retirement plan. Another definition of the work force that most closely resembles the C5320 Room 6 at the U.S. Department of Labor as those for private-sector employers. workers who generally must be covered by an employment-based retirement plan in accordance with the 5 Employee Retirement Income Security Act of 1974 (ERISA), is full-time, full-year wage and salary See from the Bureau of Labor Statistics website: “Employee Benefits in the United States ?March 2013” (July Defined Benefit vs. Defined Contribution 4 workers ages 21–64. Under this definition for private sector workers, 55.7 percent of workers worked 2013), www.bls.gov/news.release/ebs2.t01.htm.“ The increase in the number of DC plan participants has grown substantially relative to DB plan for employers sponsoring a plan, and 48.2 percent of the workers participated in a retirement plan. 6 participants since 1975. For example, the Department of Labor’s Employee Benefits Security Dushi, Irena, Howard M. Iams, and Jules Lichtenstein. “Assessment of Retirement Plan Coverage by Firm Size, Statement for the Record Administration’s Private Pension Plan Bulletin Historical Tables and Graphs (2013), which compiles Using W-2 Tax Records,” Social Security Bulletin. Vol. 71, No. 2, May 2011 by data fro www.ssa.g m the Internal Revenue Service (IRS) Form ov/policy/docs/ssb/v71n2/v71n2p53.pdf. Also 55 see A 00, shows tha nguelow, Chris E t the num ., Hober of active participants in ward M. Iams, and Patrick J. Worker Characteristics Craig Copeland, Ph.D. Purcell. “Shifting Income Sources of the Aged,” Social Security Bulletin. Vol. 72, No. 3, August 2012 a private-sector DB plan decreased from 27.2 million in 1975 to 16.5 million in 2011 (a decline of 39 The participation in a retirement plan increases substantially with age. For private sector wage and salary Senior Research Associate www.ssa.gov/policy/docs/ssb/v72n3/v72n3p59.html for further discussion of using SIPP and tax data to determine percent), while the number of active participants covered by a private-sector DC plan increased from 11.2 workers ages 21–24, 14.8 percent participated in a plan in 2012, compared with 47 percent of those ages 8 retirement-plan-participation lev Em els. ployee Benefit Research Institute (EBRI) million to 73.7 million during that same period (an increase of over 550 percent). 45–64. Male workers (40.4 percent) were slightly more likely to participate in a plan than females (37.6 7 See Craig Copeland. “Retirement Plan Participation and Features, and the Standard of Living of Americans 55 or percent). In terms of percentages, in 1979 28 percent of private sector workers had a defined benefit plan only, 7 Older.” EBRI Issue Brief, no. 248 (Employee Benefit Research Institute, August 2002). percent had a defined contri “Employment-Based Retirement Plan Participation” bution plan only, and another 10 percent had both a defined benefit and 8 Being white, having higher educational attained, or being married are also associated with higher The 2011 number for active defined contribution participants includes some participants who were not included defined contribution plan. By 2011, 3 percent of private sector workers had a defined benefit plan only, probabilities of participating in a retirement plan. Among white workers, 44.1 percent participated in a prior to 2004, in particular those classified as not contributing under the revised requirements for completing the 9 31 percent had a defined contribution plan only, and 11 percent had both. Form plan, com 5500. Therefore pared with 23. , som 1 e percent of of the increase Hispanic workers. Fifteen percent of workers without a high scho in the time series was due to including more participants as actives who ol were no diploma parti t includ ced in ipated in a plan, while 58.3 percen prior years. This resulted in 9 millio t of those holding n more being cou gradua nted as activ te or professional degrees es in 2004—the last year both ways of reporting were possible. See U.S. Department of Labor. Employee Benefits Security Administration, participated. The higher a worker’s earnings is above $10,000 the more likely he or she participates in a Conclusion Private Pension Plan Bulletin Historical Tables and Graphs (June 2013), www.dol.gov/ebsa/pdf/historicaltables.pdf plan. Approximately one-eighth (12.7 percent) of workers who had annual earnings of $10,000–$19,999 The fraction of private sector wage and salary workers who are currently participating in an employment- for more information. Furthermore, over 18 million participants in 401(k) plans had employers that also sponsored participate in a plan, compared with 66.3 percent of those earning $75,000 or more. based retirement ranges from 40 percent to just over 50 percent depending upon the data used. On a life- other pension plans. See U.S. Department of Labor. Employee Benefits Security Administration, Private Pension time basis for workers ages 51-60, the percentage of workers who had ever participated in a plan reached Plan Bulletin Historical Tables and Graphs (June 2013), www.dol.gov/ebsa/pdf/historicaltables.pdf. Consequently, 75 percent. However, there is a considerable gap in participation by the age and earnings of workers. these aggregate numbers reported from the Form 5500s included a significant number of double counting. In Employer Characteristics contrast, the CPS only counts an individual once regardless of the number of plans that individual is participating in Workers of larger employers are more likely to be retirement plan participants than are those of smaller The views expressed in this statement are solely those of Craig Copeland and should not be attributed to during the year. While the level of participation among private sector workers has remained relatively stable going back to employers. Among workers of employers with fewer than 10 employees, 13.5 percent participated in a the Employee Benefit Research Institute (EBRI), the EBRI Education and Research Fund, any of its 9 the 1980s, the portion of workers in each plan type has moved from predominately defined benefit plans plan. This percentage steadily increased for each larger group of employers by number of workers See “FAQs About Benefits—Retirement Issues: What are the trends in U.S. retirement plans?” at programs, officers, trustees, sponsors, or other staff. The Employee Benefit Research Institute is a in 1979 to defined contribution plans in 2010s. Even among those in defined benefit plans, a lump sum h reaching 54.8 percent for workers of em ttp://ebri.org/publications/benfaq/index.cfm p?lfa=retfaq1 oyers with 1,000 4 or more employees. The industries of the nonprofit, nonpartisan, education and research organization established in Washington, DC, in 1978. distribution option has grown in availability leaving close to all private sector workers with some employers also had an impact on the likelihood of participating in a plan. Workers in the manufacturing EBRI does not take policy positions, nor does it lobby, advocate specific policy recommendations, or potential for leakage of benefits. Therefore, choices workers make before retirement with regard to these industry and the transportation, utilities, information, and financial industry have the highest probability receive federal funding. plan assets could have substantial impact on the workers financial comfort in retirement. of participating, while those in the other-services industry have the lowest probability. th EBRI • 1100 13 St. NW #800 • Washington, DC 20005 • (202) 659-0670 • www.ebri.org EBRI T-1 EBRI T-1 EBRI T-178 78 78 ERISA Advisory ERISA Advisory ERISA Advisory Council, June 17, 2014 Council, June 17, 2014 Council, June 17, 2014 P P Paaagggeee 312