Pew: Access, Participation in Employer Plan Keys to Retirement Saving
In July, Pew Charitable Trusts issued a report on employer perspectives on the barriers to offering retirement plans; now, the organization has a new report on worker perspectives
on barriers to saving and the results suggest, not surprisingly, that access to an employer-sponsored plan is key.
The survey of private sector workers at small to mid-size businesses with five to 500 employees found that certain groups, including younger workers, women, Hispanics, the less educated and those who work at the smallest businesses, are less likely than their counterparts to have access to and participate in employer-sponsored plans.
Many of these workers also struggle to balance competing financial priorities and are less likely to have any retirement savings or to even be familiar with retirement plan options. The findings show that just over one-third of workers at small and midsize businesses lack access to an employer-sponsored plan, and only 28% of those without access have any other retirement savings.
Access Versus No Access
Not surprisingly, the differences are evident between full-time and part-time workers. Seventy-two percent of full-time employees have access to an employer plan, with a 51% participation rate; however, only 40% of part-time workers have access, with an 18% participation rate. In total, the report shows that 45% of all workers (full- and part-time) at small to mid-size businesses participate in employer-sponsored plans.
Demonstrating the importance of having access to an employer plan, the report shows that those who lack access but do have another type of retirement savings plan often do not contribute to it. According to the findings, 32% of respondents said they had not contributed in the past two years. Pew notes that, “while these savings are better than nothing, dormant plans can offer little in terms of growth.”
In contrast, just 8% of workers currently participating in an employer plan did not contribute at all or chose to decrease their contributions, while 92% either maintained or increased their contributions.
One way to encourage worker participation in these plans is employer matching contributions. The survey shows that when businesses contribute to a retirement plan, their full-time workers are 2½ times more likely to participate than for those working for employers that do not contribute.
The report further explains that the type of industry is also a factor in access. Those full-time workers in production, transportation and material moving, and in management and professional industries, are twice as likely to have access to a plan as those in wholesale and retail trade.
Familiarity with Retirement Plans
Other than a 401(k), many workers are unfamiliar with typical retirement plan options and those without access through their employer are unlikely to save on their own, demonstrating the importance of having access.
The report shows that 87% of respondents are familiar with a 401(k) plan and more than 60% are familiar with a traditional and Roth IRA, but more than 50% are “not at all familiar” with either profit-sharing plans or annuities.
Meanwhile, only 30% of respondents had tried to figure out in the past two years how much income they would need in retirement, and only 38% had ever tried. Again, one of the key differences appears to come down on the side of those who have access to an employer plan.
The report notes that those with access are 32% more likely than those without such access to use an online tool or calculator to assess their retirement needs. In contrast, those without access to an employer-sponsored plan are 33% more likely to “guesstimate” those needs than those who do have access.
Beyond access and participation, leakage is another factor that can significantly affect retirement savings. The report shows that nearly a third of respondents under age 59½ have taken a distribution from their account. Paying everyday bills was listed as the top reason among respondents for taking a loan or a distribution, at nearly 30%, followed by making a down payment on a house, at nearly 20%.
Pew suggests that workers “need to understand the impact of withdrawing money from retirement accounts and would benefit from policies that help them deal with unexpected short-term expenses before retirement.”