Financial Planning, Retirement

Is Retirement Plan Participation Really Trending Lower?

4/11/18 8:00 AM

iStock-138280031.jpgAccording to the past few Current Population Surveys (CPSs) from the U.S. Census Bureau, participation in employer-sponsored retirement plans has been falling sharply in recent years. Specifically, 51 percent of U.S. workers aged 26 to 64 participated in a workplace retirement plan in 2013, but this has fallen to just 39 percent in 2016 (most recent data). That is an alarming drop, but this frequently-cited Census Bureau statistic could be drastically underrepresenting the true level of retirement plan participation in America, according to a new study by the Investment Company Institute (ICI).

Indeed, the ICI researchers argue that the decline in the government’s measure of plan participation is due mainly to a revision to the survey questionnaire used by the Census Bureau, which was implemented right before the start of the downtrend that has not been corroborated by any other data source. The Statistics of Income Division (SOI) of the Internal Revenue Service (IRS), for instance, shows that among all working taxpayers aged 26 to 64 in 2014, 56 percent were active participants in a retirement plan. That is an increase from the previous year and contradicts the sharp drop recorded using the Census Bureau’s updated survey methodology. The IRS figures also imply that even before the questionnaire change the Census Bureau was likely underreporting retirement plan participation (see below).


Although such findings suggest that there are still millions of Americans not saving for retirement through an employer-sponsored plan, it is encouraging to find that participation is nowhere near as bad as the Census Bureau data would imply. That is especially true since ownership of these plans appears to be a key differentiator in household net worth, according to a recent report from the Employee Benefit Research Institute (EBRI). For example, the median net worth for families that owned employment-based retirement savings plans was $249,950 in 2016, compared to just $19,200 for families without such assets. Further, long-term participation in these plans can help participants better withstand volatility in the stock market.

That is evidenced by the EBRI’s monthly data on 401(k) balances, which showed that accounts on average fell by 0.4 percent to 1.4 percent in March, based on age and tenure, and by 1.8 percent to 2.8 percent in February. Since the end of 2015, though, the average 401(k) account balance has surged by as much as 125.0 percent, while the benchmark S&P 500 index has gained only 29.2 percent (through the end of March 2018). More importantly, these substantial gains highlight just how effective consistent participation in a tax-advantaged savings vehicle can be when trying to amass a large retirement nest egg. Additional assistance is available through the use of dollar-cost averaging and regularly consulting with a professional financial advisor.



Sources: U.S. Census Bureau, ICI, U.S. IRS, EBRI

Post author: Charles Couch