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

Previous research indicates that small businesses tend to be less likely than larger ones to offer retirement benefits to their employees. This means that resolving issues of adequate retirement savings requires an understanding of the role businesses play in retirement policy and how a business's decision on offering retirement benefits determines workers' choices regarding retirement savings. The relationship between firm size and retirement plan sponsorship is particularly important given the Obama administration's retirement proposals to create automatic individual retirement accounts. Obviously, accurate information is important for policymakers not only in formulating retirement income-security policies that would better target workers not covered by a retirement plan, but also to assess more fully the impact of policy alternatives on workers' retirement plan behavior.

In this article, we build on our previous work and provide an update of the relationship between pension plan coverage and firm size among private-sector workers, using data from the Survey of Income and Program Participation (SIPP) for 3 years: 2006, 2009, and 2012. More specifically, we report on three important measures: the proportions of employers who offered a retirement plan, the proportions of employees who participated in a retirement plan, and the proportions of employees who took up a retirement plan conditional on their employers having offered one. Following previous work, our measures of pension coverage and participation take into account, and correct for, survey-response errors in the SIPP by using information in the W-2 records regarding tax-deferred earnings to defined contribution plans. Our findings show that compared with 2006, the offer and participation rates of any pension plan increased in 2009 and 2012; the differences were relatively small, but statistically significant. Although offer and participation rates differed substantially by firm size throughout the period, take-up rates (conditional on plans being offered) differed little among workers in firms with 10 or more employees.

Selected Abbreviations

DB defined benefit

DC defined contribution

IRA individual retirement account

SIPP Survey of Income and Program Participation


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). …

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