The Where and Why of Retirement Plan Access
Location, location, location. It’s something of a truism about the three things that most affect property values. Apparently it also applies to retirement plan access.
Using a pooled version of the 2010-14 Minnesota Population Center’s Integrated Public Use Microdata Series (IPUMS) Current Population Survey (CPS), Annual Social and Economic (ASEC) Supplement, researchers at Pew Trusts found
that access and participation rates vary widely across the states and regions. Consider that 61% of workers in Wisconsin participate in an employer-based pension or retirement savings plan, compared with 38% in Florida. Indeed, the Pew Trusts researchers found that access and participation are higher in the Midwest, New England, and parts of the Pacific Northwest, and lower in the South and West.Employer Differences
However, access and participation vary based on employer size and industry type. In fact, some of the largest differences in retirement plan access and participation were found by employer size. For example, only 22% of workers at firms with fewer than 10 employees report having access to a workplace savings plan or pension, compared with 74% at firms with 500 or more. Certain industries, such as leisure and hospitality or construction, have much lower levels of access and participation than others. These factors contribute to state and regional differences.
Nationwide, 29% reported working at firms with fewer than 50 employees, though the percentages in individual states ranged from 39% in Montana to 23% in Minnesota. Consider too how regional differences come into play as well because certain industries, such as leisure and hospitality, are more concentrated in certain areas of the country. Nationwide, about 8% of workers had jobs in this industry, but they comprise 27% of the analysis group in Nevada (though only 5% in Iowa). Consider also that regional differences also can provide insight into where workers are more likely to have access to retirement savings options: In Connecticut, 15% of workers had jobs in financial services, a field more likely to offer plans, while that sector accounts for only 5% of jobs in Wyoming.Policy Implications
These differentials in employer size could have policy considerations. For example, and as the Pew report acknowledges, states are exploring initiatives to boost both access to retirement savings plans in the workplace and participation, and many new retirement savings initiatives set a minimum number of employees for an employer to be included in a mandatory program, typically exempting entrepreneurs and very small enterprises. In Illinois, for instance, the plan applies only to businesses with at least 25 employees — a threshold (as well as others like it) could mean that a retirement savings program will miss many workers, particularly in states where higher percentages of employees work in small firms, such as Montana and Wyoming.
The Pew report also notes recent research by the nonpartisan Employee Benefit Research Institute (EBRI) that indicates that in an automatic IRA contribution framework, a 3% contribution rate — as in the Illinois Secure Choice plans and in legislative proposals in several states — would have only a modest effect on long-term savings adequacy.Other Factors
Other factors also appeared to play a role. Only 32% of workers with wage and salary incomes of less than $25,000 have access to a retirement plan at the workplace, though the rate rises to 75% for workers with incomes above $100,000. Moreover, just one in five of those in the lower-income group participate in a plan, compared with 72% of more affluent workers.
Younger workers and workers with less formal education (who may also have lower incomes) are less likely to have access to a workplace retirement plan, and younger workers also are less likely to participate even if they have the option. While approximately 20% of workers nationwide are under 30 (and here, and throughout the report, “workers” are defined as full-time, age 18-64), younger workers were more prevalent outside the East Coast.
The report notes that some of the largest differences are by race and ethnicity. Among Hispanic workers, access to a plan is around 25 percentage points below that for white non-Hispanic workers. Black and Asian workers also report lower rates of access than white workers. The researchers note that this variation is likely due to underlying economic differences (such as age, job type, and income), but that other factors, such as a lack of comfort with financial institutions, may also play a role.