Coverage Questions Loom Large Where Small Business Reigns

Areas with low DC plan access tend to be those with more small businesses, according to a new analysis from the Pew Charitable Trusts.

More than 40% of full-time private sector workers say they still lack access to either a pension or an employer-based retirement savings plan such as a 401(k), new research from the Pew Charitable Trusts shows.

At the same time, just under half (49%) of U.S. workers say they participate in an employer-sponsored plan, highlighting the even more troubling fact that not everyone who is offered a plan chooses to take advantage. 

These findings are based on the Pew research report, “A Look at Access to Employer-Based Retirement Plans in the Nation’s Metropolitan Areas,” which analyzes how well the retirement planning system functions across different regions of the U.S. The report suggests upwards of 51 million full-time, full-year private sector workers live in “metropolitan statistical areas” (MSAs) in the United States, “close to three-fourths of all such workers.”

Troublingly, the research finds clear statistical evidence that industries and workers that tend to have lower access rates to retirement plans at work are heavily clustered in certain metropolitan areas. At the same time, Pew researchers find retirement plan access “varies more among the nation’s metropolitan areas than across states as a whole.” For example, the access rate among workers in the metropolitan areas ranges from 71% in Grand Rapids, Michigan, to 23% in McAllen, Texas. Nationwide, Pew finds 58% of those living/working in a metropolitan statistical area have access to a plan.

Pew researchers further find metropolitan areas with low retirement plan access rates are heavily concentrated in certain large states: “Nearly three-fourths of the MSAs in the bottom 25% are in Florida, Texas, or California.”

As such, employer and worker characteristics appear to play a large part in the disparate levels of access to plans across different MSAs. Notably, “metropolitan areas with relatively low rates of access generally have more people working for small employers.” Simultaneously, many areas with higher percentages of Hispanic or low-income workers also tend to have lower access rates, Pew finds.

NEXT: Other key takeaways 

One positive finding from the report is that the “concentrated nature of these underperforming localities” means that government efforts can reach larger numbers of people through smaller numbers of efficient programs. Recognizing this situation, Pew says New York City and other local government entities are hard at work considering their own focused proposals to expand retirement plan coverage for private sector workers.

Pew researchers stress that looking at MSAs rather than at states gives a much clearer picture of the disparities present in the U.S. retirement system: “Access to workplace retirement plans varies by nearly 50% across the metropolitan areas analyzed. This range is more than double what appears when looking at the states as a whole.”

Other ways of cutting the data are also informative, Pew says. “Nationwide, in about 90% of the metropolitan areas, at least half of workers had access to a plan,” researchers explain. “Among those employed part-time throughout the year living in metropolitan areas with a population of at least 1 million, the percentage of workers with access to a retirement plan ranged from 19% to 48%.”

According to Pew, metropolitan areas with higher shares of workers at small employers generally have lower access rates. “Previous analyses suggest that smaller businesses can face substantial obstacles to offering retirement plans, including general financial uncertainties and the administrative costs of setting up and running plans,” researchers note. “Across the 50 states, 22% of workers at companies with fewer than 10 employees report having access to a workplace retirement plan, compared with 74% of workers at businesses with at least 500 employees.” 

The clear result is that the metropolitan areas with the largest shares of workers at small employers are also those where access rates are generally the lowest.

The full report is online here.