Academic journal article Social Security Bulletin

Pension Sponsorship and Participation: Trends and Policy Issues

Academic journal article Social Security Bulletin

Pension Sponsorship and Participation: Trends and Policy Issues

Article excerpt

PERSPECTIVES

This article summarizes recent trends in employer sponsorship of retirement plans and employee participation in those plans. It is based on data collected in surveys of employers conducted by the U.S. Department ofLabor 5 Bureau of Labor Statistics and surveys of households conducted by the U.S. Census Bureau.

Summary

Employment sector and employer size account for substantial variation in workers' participation in employersponsored retirement plans. Other things being equal, employees in the public sector-that is, federal, state, and local governments-are much more likely to be offered a retirement plan than workers in the private sector. Within the private sector, workers in firms with 100 or more employees are significantly more likely than workers in smaller firms to have the opportunity to participate in a retirement plan.

This situation has prompted Congress to seek ways of reducing small businesses' obstacles to pension coverage. For example, Congress has authorized retirement plans that have fewer reporting requirements and less stringent contribution rules than those imposed on larger employers. Evaluating the effect of these laws on pension coverage is complicated by the many other variables that affect an employer's decision to sponsor a retirement plan and a worker's decision to participate in it. Nevertheless, data collected in national surveys of employers and households can be used to establish a baseline against which future changes in retirement plan sponsorship and participation can be measured.

Recent surveys of employers and households reveal that:

* During the 1990s, participation in retirement plans rose among workers in firms with fewer than 100 employees but remained stead, among workers in larger firms.

* The 1990s saw a substantial shift from defined benefit retirement plans to defined contribution plans.

* Despite increases in participation, workers in firms with fewer than 100 employees are only about half as likely as those in larger firms to participate in an employer-sponsored retirement plan.

* In both the public and private sectors, part-year or part-time workers are much less likely than year-round, full-time workers to be offered an opportunity to participate in an employer-sponsored retirement plan.

Introduction

Income during retirement has become an issue of increasing concern to Congress and the public in recent years, for several reasons.

* Americans are living longer. The average life expectancy of Americans born in 1960 was 69.7 years (U.S. Census Bureau 1991). A man who reached age 65 in 1960 could expect to live another 13 years, and a woman could expect to live another 16 years. The U.S. Census Bureau (2001) estimates that Americans born in 2000 have an average life expectancy of 77.1 years. A man who reached age 65 in 2000 could expect to live almost 16 years longer, and a woman, about 19 years. As more people live into very old age, the age profile of the U.S. population will change. In 1960, almost 17 million people in the United States (9.2 percent of the population) were aged 65 or older. In 1999, almost 35 million Americans were 65 or older (12.7 percent of the population). By 2025, according to Census Bureau projections, 62 million people in the United Statesor almost 19 percent of the population-will be 65 or older.

Working men are retiring earlier. The proportion of men aged 55 to 64 who were working or looking for work fell from 87 percent in 1950 to 68 percent in 1985.' Since 1985, the proportion has remained fairly steady at 67 percent to 69 percent. With men living longer and retiring earlier, more years are spent in retirement today than in the past. Thus, the period during which income is derived mainly from sources other than current employment is longer than it was for those workers who retired in the 1960s or 1970s.

* Birth rates fell in the 1960s and have remained low. …

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