Retirement Plan Participation Declines

Despite steady access to retirement plans, the number of working family heads that participated in their employer’s retirement plan dropped more than 2 percentage points from 2001 through 2004, to 46.1%.

A new research report from the Employee Benefit Research Institute (EBRI) said that the decrease was seen across all employers with 10 or more workers, although the percentage of family heads working for an employer that sponsored a retirement plan has remained at about 61% since 1992.

However, the participation rate number appeared to correlate with employer size; the larger the employer, the higher the participation. In fact, a scant 25.4% of those family heads working for employers with 10-19 employees participated in a plan, compared to 67.3% of those at employers with 500 or more employees. The most significant changes occurred in the smaller firms, with increased or unchanged participation levels among family heads in these firms and larger shifts to defined contribution plans while family heads in largest firms experienced less movement to defined contribution plans and a decline in their likelihood of participating in a plan, the analysis showed.

Those working in public administration or manufacturing had the highest probability of participating in a retirement plan, while those working in agriculture, forestry, and fisheries had the lowest likelihood of participation, EBRI said.

Retirement Plan Options

According to the research, those with access to a defined contribution (DC) plan continues to grow, while access to defined benefit (DB) plans declines. The study found that, in the 2004 survey:

  • 56% of heads of families who participated in an employment-based retirement plan had only a defined contribution plan;
  • 26% of heads of families had only a defined benefit plan; and
  • 18% had both.

Not surprisingly, the wholesale and retail trade industry, both with high turnover rates, had the highest percentage of workers with a defined contribution plan only, at 75.5%.

This was a significant change from 1992, when 42% of heads of families had only a defined benefit plan and 41% had only a defined contribution plan, the EBRI study reported. The most significant shift toward defined contribution plans came among employees of small firms. However, EBRI said, virtually all of the change in retirement plan access occurred prior to 1998.

The industries with the most workers having just a DB plan were public administration (with 46.8% just having a DB plan) and transportation, communications, public utilities, and personal and professional services (all with 29% of workers only having a DB plan). Family heads working in public administration also had the highest percentage with both a defined benefit and a defined contribution plan.

Those employed by the largest employers were more likely to have a defined benefit plan (either alone or with a defined contribution plan) than those who worked for smaller employers. Specifically, 48.5% of participants who worked for an employer with 500 or more employees had a defined benefit plan, compared with 26.5% of participants working for an employer with 10−19 employees.

The study is based on the Survey of Consumer Finances, a triennial survey of U.S. families sponsored by the Federal Reserve in cooperation with the Department of the Treasury. The EBRI study report is here.