Academic journal article Social Security Bulletin

Retirement Plan Coverage by Firm Size: An Update

Academic journal article Social Security Bulletin

Retirement Plan Coverage by Firm Size: An Update

Article excerpt

Introduction

Previous research has shown that a substantial proportion of workers in the private sector have no access to a pension plan,1 and that workers in large firms are more likely to have access to pensions than those in small firms. Hence, the primary challenge for both researchers and policymakers interested in retirement security has been how to expand pension coverage and participation, as a means of saving for retirement, so that workers have enough income in retirement to avoid sharp drops in their living standards. Policymakers have implemented many options-such as Simplified Employee Pension (SEP) plans and Savings Incentive Match Plans for Employees (SIMPLE)-to help small businesses overcome some of the obstacles of sponsoring retirement plans. More recently, the current administration has proposed new policies to expand retirement savings. Under the Obama administration's automatic individual retirement account (IRA) proposal, employers in business for at least 2 years and who have more than 10 employees would be required to offer an automatic IRA option to employees, under which regular contributions would be made to that IRA through payroll deductions. However, employers who sponsor a qualified retirement plan (for example, SEP or SIMPLE) for their employees would not have to provide an automatic IRA for those employees. According to the administration's proposal, employers would not have to match employee contributions nor choose or arrange default investments options. Instead, a low-cost, standard type of investment alternative would be prescribed by statute or regulation (Department of the Treasury 2014, 141-144). It is estimated that through this automatic IRA program, approximately 75 million employees working in private-sector firms with more than 10 employees who are not currently offered any pension plan would be able to save for retirement (Iwry and John 2007).

From a research and policymaking point of view, it is very important to have accurate estimates of pension coverage, participation, and take up to estimate the impact of new proposals. In general, in estimating pension coverage, researchers rely heavily on survey reports; however, the estimates of access or plan offering vary widely. Iwry and John (2007), using information from the 2004 Survey of Consumer Finances, estimated that half of the workforce had no employer-provided plan. Our estimates from Current Population Survey (CPS) data for 2012 indicate that 51 percent of private-sector employees aged 21-64 were offered a pension plan from their employer, and 42 percent reported inclusion in the plan. Using data from the 2006 Survey of Income and Program Participation (SIPP), Dushi, Iams, and Lichtenstein (2011, Table 1) estimated that 65 percent of private-sector employees aged 21-64 self-reported being offered a retirement plan; that proportion increases to 72 percent when self-reported data are augmented with information from the matched W-2 payroll records. Consistent with those authors' findings, the Employment Benefit Research Institute, based on their 2014 Retirement Confidence Survey, reported that 70 percent of workers were offered a retirement plan (Helman and others 2014, 18). Wu and Rutledge (2014, Table 2), using data from the Health and Retirement Study (HRS) for older workers (aged 50-58) over the 1992-2010 period, estimated that about 76 percent of workers were offered a retirement plan by their employer. Among workers in low-income households (with income of less than 300 percent of the federal poverty level), 59 percent were offered a plan compared with 82 percent of workers in households that were not low income.2

A recent analysis by Munnell and Bleckman (2014) suggests that estimates of plan coverage depend on the sector of employment (public or private); hours of work (any, part time, or full time); definition used (employer offering, employee inclusion, or participation); and the source of assessment (employers or employees). …

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