This Issue Brief explores
the issues of salary reduction retirement plan
sponsorship, participation, and contributions and how
they vary with worker and job-related characteristics. In
addition, this Issue Brief examines whether or not
participants view their salary reduction plan as their
primary employment-based retirement plan and how
contributions vary along this dimension. The report also
discusses the availability of employer matching
contributions and their effect on participation among
workers. Finally, it examines the issues of asset
allocation and benefit preservation.
The percentage of workers with an
employer who sponsors a salary reduction plan increased
from 26.9 percent in 1988 to 36.8 percent in 1993. Over
the same time period, the fraction of participating
workers among those where a plan was sponsored rose from
57.0 percent to 64.6 percent.
In 1988, less than one-half of all
salary reduction participants reported the plan as being
their primary plan, while in 1993 almost three-quarters
of participants reported the plan as primary. Almost
one-half of all salary reduction plan participants in
1993 reported also participating in a defined benefit
retirement plan. Sixty percent of those who participated
in both reported that they considered the salary
reduction plan to be primary.
Among workers whose employer
sponsored a salary reduction plan in 1993, 51.3 percent
reported that their employer provided matching
contributions, 18.5 percent reported no match, and 30.2
percent did not know. The participation rate among those
reporting an employer match was 77.8 percent, compared
with 71.8 percent among those reporting no match. The
true difference in these participation rates may be
understated by these tabulations. The average
contribution rate was 7.1 percent among participants
reporting a rate in 1993, compared with 6.6 percent in
1988.
Overly conservative investments may
weaken retirement income security because of low rates of
return relative to inflation. A lack of preservation of
lump-sum distributions will also erode retirement
savings. Participant education regarding such issues will
become increasingly important as the salary reduction
plan system continues to grow.
