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What Is the Most Accurate Participation Rate for Retirement Plans?

Practice Management


A new study contends that American workers’ participation in employer-sponsored retirement plans is significantly higher than suggested by the most commonly cited statistics. 

In fact, nearly two-thirds of workers between ages 26 and 64 participate in such plans, either directly or through a spouse, according to the Investment Company Institute’s “Who Participates in Retirement Plans, 2016.” What’s more, the participation rate rises to more than three-quarters if younger and lower-income workers – those who are the least likely to be able to or want to save for retirement – are excluded from the analysis.

Most American workers will accumulate resources in employer plans by the time they retire, but this is “not well understood for two reasons,” explains ICI Senior Economic Adviser Peter Brady. “First, participation is often understated in household surveys, which are used to study participation. Second, many younger and lower-income workers who are not participating in retirement plans today will do so later in their careers,” Brady says. 

Misleading Snapshots

ICI’s report emphasizes that the overall participation rate – which is a snapshot of how many workers are taking advantage of an employer plan at a single point in time – can misrepresent retirement preparedness. The organization suggests that the reason is simple: just because some workers aren’t participating in a plan today doesn’t mean they won’t do so later in life.

The study explains that younger and lower-income workers are the least likely to want to save for retirement, and thus, less likely to search for an employer that offers a retirement plan or participate in a plan if given the choice.

Younger workers, not surprisingly, typically are more focused on saving for goals other than retirement, such as buying a house, paying for education or starting a family, the report observes. In addition, they may choose to delay saving for retirement until they’re older, when earnings are typically higher and they have accomplished other priorities.

Low-income workers who remain that way throughout their careers also may choose not to save for retirement at any age, as it would reduce resources with which they could address more immediate needs and because Social Security likely will replace a high percentage of their earnings, the ICI further notes.

Plan Participation

As would be expected, the study shows participation in employer plans increases as workers get older. For example, ICI’s data shows that 55% of workers between the ages of 26 to 34 either participated in an employer plan or had a spouse who did so. This rate, however, jumps to 69% for workers who were 45 to 64 years old.

ICI’s paper also illustrates, not surprisingly, that higher-earning workers are more likely to participate in an employer plan. Among workers between ages 26 and 64, the probability that an employee participated in a retirement plan at his/her workplace spanned the following range:

  • 22% for those earning less than $20,000;
  • 67% for those earning $40,000 to $50,000; and
  • 85% for those earning $100,000 or more.

Data Points

Circling back on the misleading snapshots, the ICI notes that its study is based on 2016 tax data published by the IRS Statistics of Income Division (SOI), with a focus on working taxpayers between the ages of 26 and 64.

The study further compares the results from the SOI data with the most commonly cited statistics on the retirement plan participation rate, which come from the Annual Social and Economic Supplement (ASEC[JI1]) to the Current Population Survey (CPS).

The ICI found that the CPS has consistently understated retirement plan participation and the differences between the two data sources increased following a recent revision to the ASEC’s questionnaire.

The comparisons suggest that the ASEC understated the participation rate by about 5 percentage points from 2008 to 2013. And between 2013 and 2016, the difference increased to 18 percentage points following a revision to the survey questionnaire used for the ASEC, the report notes.

As such, the ICI contends that the “need for a more reliable measure of retirement plan participation has increased given recent changes” to the ASEC.