Employment-based retirement plan participation: geographic differences and trends, 2010

LATEST DATA: This Issue Brief examines the level of participation by workers in public- and private-sector employment-based pension or retirement plans, based on the U.S. Census Bureau's March 2011 Current Population Survey (CPS), the most recent data currently available (for year-end 2010). SPONSORSHIP RATE: Among all working-age (21-64) wage and salary employees, 54.2 percent worked for an employer or union that sponsored a retirement plan in 2010. Among full-time, full-year wage and salary workers ages 21-64 (those with the strongest connection to the work force), 61.6 percent worked for an employer or union that sponsors a plan. PARTICIPATION LEVEL: Among full-time, full-year wage and salary workers ages 21-64, 54.5 percent participated in a retirement plan. TREND: This is virtually unchanged from 54.4 percent in 2009. Participation trends increased significantly in the late 1990s, and decreased in 2001 and 2002. In 2003 and 2004, the participation trend flattened out. The retirement plan participation level subsequently declined in 2005 and 2006, before a significant increase in 2007. Slight declines occurred in 2008 and 2009, followed by a flattening out of the trend in 2010. AGE: Participation increased with age (61.4 percent for wage and salary workers ages 55-64, compared with 29.2 percent for those ages 21-24). GENDER: Among wage and salary workers ages 21-64, men had a higher participation level than women, but among full-time, full-year workers, women had a higher percentage participating than men (55.5 percent for women, compared with 53.8 percent for men). Female workers' lower probability of participation among wage and salary workers results from their overall lower earnings and lower rates of full-time work in comparison with males. RACE: Hispanic wage and salary workers were significantly less likely than both white and black workers to participate in a retirement plan. The gap between the percentages of black and white plan participants that exists overall narrows when compared across earnings levels. GEOGRAPHIC DIFFERENCES: Wage and salary workers in the South and West had the lowest participation levels (Florida had the lowest percentage, at 43.7 percent) while the upper Midwest, Mid-Atlantic, and Northeast had the highest levels (West Virginia had the highest participation level, at 64.2 percent). OTHER FACTORS: White, more highly educated, higher-income, and married workers are more likely to participate than their counterparts.     

Employment-based health benefits: who is offered coverage vs. who takes it

This Issue Brief provides data on employment-based health insurance, with a discussion of recent trends and how sponsorship rates, offer rates, coverage rates, and take-up rates vary for different workers. Other sections examine reasons why workers do not participate in employment-based health plans, alternative sources of health insurance, and uninsured workers. In 1997, 83 percent of the 108.1 million wage and salary workers in the United States were employed by a firm that sponsored a health plan. Of those workers, 75 percent were offered coverage, and 62 percent (or 67.5 million workers) were covered by that plan. Of those workers who worked for an employer that offered them a health plan, 83 percent participated in the plan. Sponsorship rates have barely changed in the last 11 years. In 1988, 83 percent of wage and salary workers reported that their employer sponsored a health plan. This declined slightly to 82 percent in 1993 but had increased to 83 percent by 1997. Offer rates significantly changed between 1988 and 1997. In 1988, 82 percent of workers reported that they were eligible for health insurance through their employer. By 1993, the percentage of eligible workers declined to 74 percent, and it has only slightly increased since then to 75 percent in 1997. In 1997, 40.6 million American workers did not have health insurance through their own job. Forty-five percent of the workers without coverage were employed at a firm where the employer did not provide health insurance to any workers. Thirty-three percent of the workers without coverage were offered coverage but declined it. Twenty-two percent of the workers without coverage were employed in a firm that offered health insurance to some of its workers, but certain workers were not eligible for the health plan. The 13.7 million workers who were offered coverage but declined it gave a number of reasons for doing so. In the majority of cases (61 percent), the worker was covered by another health plan. Of the remainder, 20 percent reported that health insurance was just too costly. Overall, 41 percent of the 40.6 million workers who were not participating in an employment-based health plan through their own employer had coverage through a spouse. However, 42 percent of the 40.6 million workers who declined their employers' health plan or who were not offered health insurance from their employer were uninsured.     

Encouraging workers to save: the 2005 Retirement Confidence Survey

This Issue Brief reports findings of the 15th annual Retirement Confidence Survey (RCS), which points to potential solutions to the American retirement savings problem, specifically ways that could help workers save more through their employment-based retirement plans. IMPORTANCE OF EMPLOYER MATCH: More than 7 in 10 workers not currently contributing to their employer-sponsored retirement plan say an employer contribution of up to 5 percent of their salary would make them much more or somewhat more likely to participate (72 percent). SIMPLIFIED OPTIONS: Other retirement plan options that nonparticipants say would make them more likely to contribute are an investment option that automatically becomes more conservative as their retirement date approaches (66 percent) and a feature that automatically raises workers' contributions by a fixed amount or percentage when they receive a pay raise (55 percent). Two-thirds of nonparticipants indicate they would be very or somewhat likely to remain in their employer's plan if they were automatically enrolled (66 percent). SOCIAL SECURITY: Nearly 7 in 10 of today's workers are skeptical that Social Security will continue to provide benefits of at least equal value to those received by current retirees (68 percent). This proportion has remained relatively constant in recent years, but is below the 1995 level (79 percent). Workers continue to be unable to identify the age at which they will be eligible for full Social Security benefits. MOST BEHIND SCHEDULE IN SAVING: A majority of workers believe they are behind schedule when it comes to planning and saving for retirement (55 percent). Most of those behind schedule say that high expenses, particularly everyday expenses (49 percent), child-rearing expenses (39 percent), and medical costs (35 percent), are a major factor in keeping them from saving. LESS THAN HALF HAVE TRIED TO CALCULATE NEEDED SAVINGS: Approximately 4 in 10 workers say they have tried to calculate how much they need to accumulate for retirement. More than one-third of these workers say they asked a financial advisor to calculate this number or used their own estimates; 10 percent say they simply guessed how much they will need in retirement.     

Medicare on life support: will it survive?

This Issue Brief discusses Medicare reform. The Balanced Budget Act of 1997 reduces spending in the Medicare program by $115 billion between 1998 and 2002. Most of the reduction in spending comes from reducing payments to providers, and most of the savings (36 percent) occur in 2002. By 2007, the Part A trust fund is expected to be insolvent, four years before the baby-boom generation reaches the current Medicare eligibility age of 65. Congress is likely to revisit Medicare reform in the near future. A number of reforms received a significant amount of attention during the Medicare reform debate, but were not included in the final legislation. The Senate-passed legislation would have increased the Medicare eligibility age from 65 to 67, imposed means testing on Medicare Part B, and imposed a Part B home health copayment of $5. While these provisions were not included in the Balanced Budget Act of 1997, they may be the focal point of future Medicare reform. Many changes to the Medicare program are likely to significantly affect employment-based health plans for both active and retired workers. Raising the Medicare eligibility age would undoubtedly affect both workers and retirees. Unless workers are willing to work until age 67, their likelihood of becoming uninsured would increase. In 1995, 15.8 percent of retirees ages 55-64 were uninsured, compared with 11.5 percent of workers in the same age group. Early retirees might also find themselves unable to afford health insurance in the private market. An Employee Benefit Research Institute/Gallup poll indicates a direct link between the availability of retiree health benefits and a worker's decision to retire early. In 1993, 61 percent of workers reported that they would not retire before becoming eligible for Medicare if their employer did not provide retiree health benefits. If workers responded to an increase in the retirement age by working longer, employment-based health plans would probably experience an increase in costs, because older workers are the most costly to cover. Some employers might respond to an increase in the Medicare eligibility age by dropping coverage altogether. The message for future beneficiaries is becoming very clear: expect less from Medicare at later ages and higher premiums. As was true prior to the enactment of Medicare in 1965, workers will increasingly need to include retiree health insurance as an expected expense as they plan and save for retirement.     

Baby boomers in retirement: what are their prospects?

This Issue Brief examines the baby boomers' retirement income prospects by analyzing trends in the elderly's income and pension participation among workers; examining saving behavior and critically evaluating studies of the adequacy of the boomers' saving; and looking at tenure trends, lump-sum distribution preservation, and changes in Social Security benefits. Since the mid 1970s, the real median income of individuals aged 65 and over has increased 18 percent. Sources of income have shifted, with employment-based pensions increasing and earnings and asset income decreasing as a proportion of income. The boomers' prospects are partly dependent on participation in employment-based retirement plans. After decreases in the sponsorship rates, participation rates, and vesting rates of workers during the 1980s, all three percentages increased during the early 1990s. Data do not support the perception that the U.S. work force is becoming increasingly mobile. Tenure levels for prime age workers in the 1980s and beginning of the 1990s were higher than those of previous decades. Still, in response to competitive pressures, employers may not offer the security of paternalistic benefit packages as in the past. Various studies have reached different conclusions regarding the adequacy of the boomers' financial preparation for retirement. Evidence indicates that boomers, in general, will enjoy a retirement standard of living exceeding that of their parents. It is less clear whether they will maintain a standard of living in retirement comparable to that of their working years. To the extent they are willing to tap housing wealth, they would appear at this early stage to be in good shape. Federal fiscal policy decisions will impact boomers by affecting their disposable income today, and thus their ability to save, as well as the benefits they will receive in retirement through Social Security and Medicare. The boomers are 17 to 35 years away from age 65. Given heterogeneity of the boomers, research is needed to identify what specific groups within the generation are at risk and the magnitude of that risk. Groups that would now appear to be at risk to some degree include non-homeowners, the less educated, the single, and the youngest boomers.     

Questions and answers on employee benefit issues

This Issue Brief addresses 19 topics in the areas of pensions, health insurance, and other benefits. In addition to the topics listed below, the report includes data on the prevalence of benefits, tax incentives associated with benefits, lump-sum distributions, number of private pension plans, pension coverage rates, 401(k) plans, employer spending on group health insurance, self-insured health plans, employer initiatives to reduce health care costs, and employers' response to the retiree health benefits accounting rule, and flexible benefits plans. In 1992, U.S. employers (public and private) spent $629 billion for noncash benefits, representing nearly 18 percent of total compensation, excluding paid time off. In 1992, 71 percent of the 50.1 million individuals aged 55 and over received retirement benefits, including distributions from private and public pensions, annuities, individual retirement accounts, Keoghs, 401(k)s, and Social Security. Among the 76 percent of all private pension plan participants who participated in a single plan, 30 percent named a defined benefit plan as their pension plan type, 58 percent named a defined contribution plan as their pension plan type, and 12 percent did not know their plan type. Private and public pension funds held more than $4.6 trillion in assets at the end of 1993. The 1993 year-end assets are more than triple the asset level of 1983 (nominal terms). According to the Congressional Budget Office, U.S. expenditures on health care were expected to have reached $898 billion in 1993, up from $751.8 billion in 1991, an increase of 19.4 percent in nominal terms.     

The evolution of retirement: results of the 1999 Retirement Confidence Survey

The ninth annual Retirement Confidence Survey (RCS) shows continued evidence of progress in the drive for retirement income security for American workers. However, there are still hurdles to overcome. The RCS tracks Americans' retirement planning and saving behavior and their confidence regarding various aspects of their retirement. It also categorizes workers and retirees into distinct groups based on their individual views on retirement, retirement planning, and saving. The retirement envisioned by today's workers looks different in many respects from that now experienced by current retirees. Today's workers expect to work longer than current retirees actually worked before retiring--and many say they plan to work for pay after they retire. Twenty-four percent of workers reported that they are very confident they will have enough money to live comfortably in retirement, and 45 percent reported that they are somewhat confident. However, there are indications that many may be falsely confident. The good news is that 70 percent of Americans are saving for retirement, and a growing percentage (49 percent) are going further and determining how much they need to save to fund their retirement. The bad news is that 30 percent of Americans have not begun to save for their retirement, and 51 percent have never tried to determine how much they need to save. Employers play a major role in ensuring adequate retirement preparation. Forty percent of all workers said they expect that money provided by their employer will be a major source of retirement income. Forty-six percent expect the money they put into a retirement plan at work to be a major source of income. The availability of a retirement plan at work is credited by 48 percent of savers as motivation to save. While worker education is a point of emphasis among both employers and policymakers, more remains to be done. For example, 59 percent of workers expect to be eligible for full Social Security benefits sooner than they actually will be, and an additional 19 percent admit they do not know when they will be eligible. There is evidence that education can have an impact on individual behavior. Forty percent of workers receiving educational material at work in the last year said that information caused them to begin saving (19 percent) or resume saving (21 percent) for retirement, while 40 percent said they changed the amount they were contributing to a retirement savings plan and 41 percent changed the allocation of their money in a retirement savings plan.     

The ongoing growth of defined contribution and individual account plans: issues and implications

This Issue Brief discusses the implications of the growth of defined contribution (DC) retirement plans and individual account plans and the subsequent impact on employers, employees, and retirement planning. It also presents a look at data regarding contributions to retirement plans, employer trends regarding retirement plans, and the potential impact of changes to the federal Social Security retirement system. The findings and data in this article are drawn from material presented at a policy forum sponsored by the Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) Dec. 7, 2001, in Washington, DC. Today, prospective retirees need to be able to generate about 75 percent of their current income to maintain their standard of living in retirement, up from 63 percent of their income in 1997, according to the Replacement Ratio Study, by Aon Corporation and Georgia State University. However, the most recent data show a decline in the percentage of income that average employees are saving. While it is too early to quantify, it does not appear that the retirement provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) are strongly influencing the movement to DC plans. However, employers appear very interested in the provisions of the new law with regard to both defined benefit (DB) retirement plans and DC plans. The number of large employers offering DB plans continues to decline, from 85 percent in 1990 to 73 percent in 2000, according to the Hewitt study. Although employers may have little influence over some factors that affect participation rates in voluntary retirement plans, they have various options to increase participation rates, such as "matching" employee contributions, offering loan features, and providing education to employees about the plans.     

Women and pensions: a decade of progress?

This Issue Brief compares changes from 1989 to 1998 in pension participation, accumulation, and allocation for employed women, versus employed men, ages 18-62. In addition, it provides an estimate of the gender "pension gap" in defined contribution accumulations, contrasts this with the gender "earnings gap," and provides explanations for these differences. Between 1989 and 1998, the percentage of employed women with a pension or retirement plan at their current job increased from 43 percent to 45 percent, compared with a decline from 53 percent to 52 percent for employed men. For both women and men, the percentage with defined contribution retirement plans increased dramatically, while the percentage with defined benefit pension plans dropped sharply. Between 1989 and 1998, the ratio of women's to men's defined contribution plan accumulations increased from 40 percent to 44 percent, indicating a narrowing of the gender pension gap. However, the narrowing was concentrated among the cohort ages 45-53 in 1998. The gender pension gap increased for women in other age groups. Gender differences in defined contribution plan accumulations can be attributed to differences in earnings and job characteristics. Between 1989 and 1998, for workers with defined contribution plans, the ratio of women's to men's earnings remained unchanged at 57 percent. Employed women with defined contribution plans are more than twice as likely to earn less than $25,000 per year than employed men with defined contribution plans, but almost five times less likely to earn more than $100,000 per year. From 1989 to 1998, the percentage of employed men with defined contribution balances invested mostly in low-risk, low-return assets declined much more than the percentage of employed women who followed that investment strategy. Whereas the percentages of men and women with retirement plans invested mostly in bonds were nearly equal at 31 percent and 32 percent in 1989, respectively, by 1998, 20 percent of women (compared with 14 percent of men) had their retirement plans invested mostly in bonds. The trend toward defined contribution plans and riskier retirement portfolios has resulted in significant wealth accumulation over the decade. In real terms, both men and women have greater retirement plan wealth, but increases have been larger for men than for women. Since there is no evidence that plan provisions vary by gender, improvements in the gender pension gap will come only with changes in women's labor force experience and investment decision-making.     

The retirement system in transition: the 2007 Retirement Confidence Survey

WORKERS SLOW TO SEE OR ADAPT TO A CHANGING U.S. RETIREMENT SYSTEM: The 17th annual wave of the Retirement Confidence Survey (RCS) suggests that American workers may be slow to recognize how the U.S. retirement system is changing, and those who are aware of these changes may not be adapting to them in ways that are likely to secure them a comfortable retirement. HALF OF WORKERS LESS CONFIDENT ABOUT PENSION BENEFITS: The RCS finds pension-plan changes by employers have left nearly half of workers less confident about the benefits they will receive from a traditional pension plan, but that those experiencing a decline in retirement benefits often fail to react constructively. Moreover, although Americans will rely increasingly on 401(k) retirement savings plans and other personal savings and investments to fund their retirement security, data suggest that many may not follow professional investment advice when it is offered to them. MANY WORKERS COUNTING ON BENEFITS THAT WON'T BE THERE: Many workers are counting on employer-provided benefits in retirement that are increasingly unavailable. Only 41 percent of workers indicate they or their spouse currently have a defined benefit pension plan, yet 62 percent say they are expecting to receive income from such a plan in retirement. Likewise, workers are as likely to expect as retirees are to receive retiree health insurance through an employer, even though the number of employers offering this benefit to future retirees is declining. MANY WORKERS UNLIKELY TO HEED INVESTMENT ADVICE EVEN IF THEY GET IT: More than half of workers indicate they would be likely to take advantage of professional investment advice offered by companies that manage employer-sponsored retirement plans. However, two-thirds of these workers say they would probably implement only some of the recommendations they receive and 1 in 10 think they would implement none of them. AMERICANS OVERESTIMATE LONG-TERM CARE COVERAGE: One-quarter of workers and more than one-third of retirees report they have long-term care insurance (separate from health insurance, Medicare, and Medicaid) to help pay for care they might need in a nursing home, assisted living facility, or at home. But only 10 percent of Americans age 65 and older are estimated to have had private long-term care insurance in 2002, suggesting that many are counting on coverage they do not actually have. MOST SAVINGS LEVELS ARE MODEST: Almost half of workers saving for retirement report total savings and investments (not including the value of their primary residence or any defined benefit plans) of less than $25,000. The majority of workers who have not put money aside for retirement have little in savings at all: Seven in 10 of these workers say their assets total less than $10,000. CONTINUED IGNORANCE ABOUT SOCIAL SECURITY COVERAGE: Despite the longstanding increase in the eligibility age for Social Security, only a small minority of workers are aware of the age at which they can receive full retirement benefits from Social Security without a reduction for early retirement.     

INFORMING RETIREMENT SAVINGS DECISIONS: A FIELD EXPERIMENT ON SUPPLEMENTAL PLANS

Although supplemental saving plans can be an important part of an individual's financial security in retirement, contribution rates remain low, particularly among those with lower salaries and less education. We report findings from an intervention that provided information on key aspects of the employer‐provided supplemental saving plans to older public employees in North Carolina. Among workers participating in a supplemental plan, individuals who received an informational flyer increased their contributions in the months following the intervention relative to the control group. In contrast, individuals who were not enrolled in a retirement saving plan were not moved to begin contributing to a supplemental plan. The results suggest that informational interventions can induce workers who are already engaged in the saving process to reassess their level of retirement preparedness. (JEL C93, D14, D9)     

Overcoming Inertia: Do Automated Saving and Investing Strategies Work?

Many workers do not take advantage of savings opportunities provided to them at their workplace, nor do they always make wise investment decisions regarding employer plans. Various automated strategies have been implemented by employers with the objective of increasing retirement plan participation and, hence, the financial security of workers. Automatic strategies work by proactively arranging some type of action (e.g., plan enrollment) to occur unless people specifically opt out. This article examines and synthesizes previous empirical research about five automatic savings and investing strategies: (a) automatic retirement savings plan enrollment, (b) automatic contribution increases, (c) automatic portfolio rebalancing, (d) automatic rollovers, and (e) automatic investment plans. Advantages and disadvantages of each strategy are discussed, along with implications for financial educators.     

The 2012 Retirement Confidence Survey: job insecurity, debt weigh on retirement confidence, savings

Americans' confidence in their ability to retire comfortably is stagnant at historically low levels. Just 14 percent are very confident they will have enough money to live comfortably in retirement (statistically equivalent to the low of 13 percent measured in 2011 and 2009). Employment insecurity looms large: Forty-two percent identify job uncertainty as the most pressing financial issue facing most Americans today. Worker confidence about having enough money to pay for medical expenses and long-term care expenses in retirement remains well below their confidence levels for paying basic expenses. Many workers report they have virtually no savings and investments. In total, 60 percent of workers report that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. Twenty-five percent of workers in the 2012 Retirement Confidence Survey say the age at which they expect to retire has changed in the past year. In 1991, 11 percent of workers said they expected to retire after age 65, and by 2012 that has grown to 37 percent. Regardless of those retirement age expectations, and consistent with prior RCS findings, half of current retirees surveyed say they left the work force unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure. Those already in retirement tend to express higher levels of confidence than current workers about several key financial aspects of retirement. Retirees report they are significantly more reliant on Social Security as a major source of their retirement income than current workers expect to be. Although 56 percent of workers expect to receive benefits from a defined benefit plan in retirement, only 33 percent report that they and/or their spouse currently have such a benefit with a current or previous employer. More than half of workers (56 percent) report they and/or their spouse have not tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement. Only a minority of workers and retirees feel very comfortable using online technologies to perform various tasks related to financial management. Relatively few use mobile devices such as a smart phone or tablet to manage their finances, and just 10 percent say they are comfortable obtaining advice from financial professionals online.     

Retirement plans, personal saving, and saving adequacy

This Issue Brief addresses three questions raised by recent trends in personal saving: How are national savings measured and what is the meaning of the trends in measured personal saving rates, given what is included and what is not included in those measures? What is the effect of retirement saving programs--in particular, 401(k) plans and individual retirement accounts (IRAs)--on personal saving levels? What are the implications of existing saving behavior for the retirement income security of today's workers? The National Income and Product Accounts (NIPA), the most commonly referenced gauge of personal saving, is a widely misunderstood measure. One could argue that a complete measure of saving would include increases in wealth through capital gains, but NIPA does not factor accrued and realized capital gains on stocks and other assets into the saving rate. By one measure, accounting for capital gains results in an aggregate personal saving rate of 33 percent--more than double the rate of four decades ago. A major policy question is the impact of tax-qualified retirement saving plans (i.e., IRAs and 401(k) plans) on personal saving rates. Empirical analysis of this issue is extremely challenging and findings have been contradictory. These programs now represent an enormous store of retirement-earmarked wealth in tax-deferred vehicles: Combined, such tax-deferred retirement accounts currently have assets of about $4 trillion. Ninety percent of IRA contributions are now the result of "rollovers" as employees leave employer plans, like 401(k) plans. While leakage from the system remains a challenge, the majority of the assets in the system can be expected to be available to fund workers' retirements. One could argue that, from a retirement income security perspective, workers in general are better off because IRA and 401(k) programs exist. Surely, many of the dollars in these programs would have been saved even without the programs; but they would not necessarily have been earmarked for retirement and been available to fund retirement expenses. As rollovers become larger, this "partnership" of employment-based qualified plans and IRAs will grow even more important. The evidence indicates that many groups of American workers appear unlikely to be able to afford a retirement that maintains their current lifestyle (at least not without working more years than currently planned). Consensus does not exist on how many workers are at risk or the typical magnitude of their retirement saving shortfall. There is a consensus, however, that a substantial number of individuals are at risk. This is not surprising--despite the fact that the 70 percent of workers are saving for retirement--since relatively few workers know how much it is that they need to accumulate to fund their retirement.     

Contribution behavior of 401(k) plan participants

This Issue Brief examines the 1999 contribution behavior of 1.7 million 401(k) plan participants drawn from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. The findings in this paper build on previous academic research examining the contribution activity of 401(k) participants, by using a large sample of participants in a wide range of plan sizes and by examining in detail the factors that influence contribution activity. Eighty-five percent of participants in the sample only made before-tax contributions to their plans, and 97 percent of all dollars contributed by employees were contributed on a before-tax basis. On average, participants contributed 6.8 percent of their salaries on a before-tax basis. Before-tax contribution activity varied among participants. About 61 percent of participants contributed more than 5 percent of their salaries on a before-tax basis and about 21 percent set aside more than 10 percent of their salaries on a before-tax basis. Eleven percent of participants analyzed in this study earning more than $40,000 a year contributed at the $10,000 before-tax IRC limit in 1999. Thirteen percent of participants with salaries between $70,000 and $80,000 contributed at the cap, and 18 percent of those with salaries between $80,000 and $90,000 were at the limit. However, it appears that among participants not contributing at the IRC limit, 52 percent could not have done so because of formal plan-imposed contribution limits below the IRC limit. Older participants tended to contribute a higher percentage of their salaries to plans than did younger participants, even after factoring out differences in salary and job tenure. Participants tended to increase the share of their salary (and amounts) contributed to their 401(k) plan as their salaries rose until salaries reached $80,000. For individuals with salaries above $80,000, before-tax contribution rates (though not the amounts contributed) tended to fall as salaries rose because IRC, and possibly plan sponsor, contribution limits became binding for some participants. Giving employees the option of borrowing from their 401(k) accounts increased participant contribution rates. On average, a participant in a plan offering loans appeared to contribute 0.6 percentage point more of his or her salary to the plan than a participant in a plan with no loan provision. Total contributions--the sum of employee and employer contributions--were higher for participants who received an employer contribution as part of their 401(k) plan than for those who did not. The average total contribution rate was 10 percent of salary for employees in plans offering an employer contribution, compared with 7.4 percent for those in plans not offering an employer contribution.     

Personal account retirement plans: an analysis of the survey of consumers finances

This report is based on data from the Federal Reserve Board's triennial Survey of Consumer Financies (SCF), which provides the most comprehensive data available on the wealth of American households. The most recent SCF data are for 1998, and this report tracks information from the 1992, 1995, and 1998 surveys. The percentage of families with a participant in a pension plan from a current job increased from 38.8 percent to 41.0 percent over this six-year period. If one focuses exclusively on those families with a worker and in which the head is under age 65, the percentage for 1998 increases to 56.8 percent. The previously documented trend toward defined contribution plans was confirmed and the significance of 401(k)-type plans for those families participating in a pension plan more than doubled, from 31.6 percent in 1992 to 64.3 percent in 1998. The percentage of family heads eligible to participate in a defined contribution plan that did so increased from 73.8 percent in 1995 to 77.3 percent in 1998. Of those families choosing not to participate in a defined contribution plan, 40.3 percent were already participating in a defined benefit plan. Overall, "personal account plans" represented nearly one-half (49.5 percent) of all the financial assets for those families with either a defined contribution plan account, IRA, or Keogh, in 1998. This was a significant increase from 43.6 percent in 1992. The average total account balance in personal account plans for families with a plan in 1998 was $78,417, an increase of 54 percent in real terms over the 1992 balance of $50,914 (expressed in 1998 dollars). For families participating in a defined contribution plan, IRA, or Keogh in 1998, 52 percent of the overall average was attributed to IRA/Keogh balances (43 percent from IRAs alone), and 44 percent of the average was from account balances in defined contribution plans with the current employer. There is a marked tendency for lower-income families to have larger percentages of their total personal account plan retirement portfolio in IRAs, although this trend appears to be fading with time. The impact of rollovers on the average total account balance for all individual account balances appears to be quite large: $152,451 for those with at least one rollover, versus $78,471 for all families participating in at least one personal account plan, regardless of whether they have had a rollover. The vast majority of the rollovers would appear to be going to IRAs, as opposed to a defined contribution plan with a new employer.     

Flexible benefits, choice, and work force diversity

This Issue Brief evaluates the prevalence of flexible benefits plans and their ability to achieve cost management goals and to meet the needs of diverse employee groups. In addition, it examines flexible benefits plans' current legislative and regulatory status and typical plan design features. Sec. 125 of the Internal Revenue Code allows employers to provide employees with a choice among benefits, including moving otherwise taxable cash compensation to the pre-tax purchase of benefits, without requiring them to include the value of the noncash benefits in their adjusted gross income unless they choose taxable options. Although the percentage of full-time employees in medium and large private establishments who are eligible for cafeteria plans has not increased appreciably, the percentage of employees eligible for freestanding flexible spending accounts (FSAs) nearly tripled between 1988 and 1991. Generally, the proportion of employers sponsoring cafeteria plans or FSAs increases with employer size. Recent surveys show that 27 percent of employers with 1,000 or more employees offered choice-making plans in 1991, 48 percent of firms offered health care FSAs, and 54 percent offered dependent care FSAs, either in conjunction with cafeteria plans or as a stand-alone option. Ten percent of full-time employees in private firms employing 100 or more workers were eligible to participate in cafeteria plans in 1991. Only 5 percent of full-time employees in state and local governments and 1 percent of similar employees in small private establishments were eligible for cafeteria plans in 1990. Recent Bureau of Labor Statistics' surveys show that, among full-time employees, 27 percent in private establishments with 100 or more employees, 28 percent in state and local governments, and 6 percent in small private establishments were eligible to participate in freestanding FSAs. In 1992, 21 percent of eligible employees contributed to a health care FSA, and only 3 percent of eligible employees contributed to a dependent care FSA. Contributions to health care FSAs averaged $651, and those to dependent care FSAs averaged $2,959. National health reform could have a significant impact on these plans if the tax treatment of health benefits is changed. Taxation of health benefits in excess of a standard benefits package would fundamentally reduce the ability to use FSAs.     

Employment-based health benefits: analysis of the April 1993 Current Population Survey

The April 1993 CPS differs from the March 1993 CPS in a number of respects. The April 1993 CPS supplement surveys only workers, whereas the March CPS examines the noncash benefits received by all Americans. The April CPS asks workers about health coverage in the week in which the questions were fielded, whereas the March CPS asks about coverage in the preceding year. In April 1993, there were 112.5 million civilian American workers between the ages of 18 and 64 with jobs. Eighty-two million (73 percent) of them worked for an employer that sponsored a health insurance plan, and 65 million (58 percent of all workers) participated in their employer's health plan. About one-third of workers at firms with fewer than 10 employees had employers who offer health benefits; about one-quarter of all of the workers in these firms participated in their employer's plan. Conversely, 94 percent of workers at firms with more than 1,000 employees had an employer who sponsored health benefits, and over 77 percent of these workers participated in their employer's plan. There are 16.5 million American workers whose employers sponsored health benefits but who did not participate in these benefits. Over one-half of these workers (8.5 million) chose not to be covered. Another 36 percent of these workers (5.9 million) did not participate because they were ineligible or denied coverage. Over 66 percent of the ineligible workers did not participate because they were part-time, contract, or temporary workers. Another 26 percent had not yet completed a probationary period. Among the reasons that those who chose not to participate in their employer's coverage, the vast majority (75 percent) stated they were covered by another health care plan. Twenty-nine percent stated that they chose not to purchase coverage because it was too costly or that they did not need or want the coverage. In 1993, there were 16.7 million workers with no health insurance coverage. The vast majority of these workers (95 percent) were employed by private employers. Sixty-six percent of the workers with no health insurance coverage were self-employed or worked for firms with fewer than 100 employees.     

Retirement Plan Participation in an Era of Change: The Case of a Rural Region*

Individual savings are critical for retirement as government and employer‐based provisions fade or become less secure. Rural communities are vulnerable given their higher proportion of elderly and more who rely on Social Security. Using a telephone survey of working‐age residents in Michigan's rural Upper Peninsula, this research investigates factors associated with participation in tax‐advantaged retirement plans that have largely replaced defined‐benefit pension plans for earmarked retirement savings. The project also identifies factors predictive of making maximum contributions to those retirement plans. We consider several distinct categories of variables to reflect the social embeddedness of economic action. In addition, the research included community variables describing aspects of respondents' social context, a new component of the savings discourse, which we show to be significantly related to saving outside a tax‐advantaged retirement plan and making maximum contributions to a tax‐advantaged retirement plan.     

401(k) plan asset allocation, account balances, and loan activity in 1998

The Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) have been collaborating for the past three years to collect data on participants in 401(k) plans. This effort, known as the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project, has obtained data for 401(k) plan participants from certain of EBRI and ICI members serving as plan record keepers and administrators. The report includes 1998 information on 7.9 million active participants in 30,102 plans holding nearly $372 billion in assets. The data include demographic information, annual contributions, plan balances, asset allocation, and loans, and are broadly representative of the universe of 401(k) plans. The database also includes three years of longitudinal information on approximately 3.3 million participants. Key findings include: For all 401(k) participants in the 1998 EBRI/ICI database, almost three-quarters of plan balances are invested directly or indirectly in equity securities. Specifically, 49.8 percent of total plan balances are invested in equity funds, 17.7 percent in company stock, 11.4 percent in guaranteed investment contracts (GICs), 8.4 percent in balanced funds, 6.1 percent in bond funds, 4.7 percent in money funds, and 0.3 percent in other stable value funds. Participant asset allocation varies considerably with age. Younger participants tend to favor equity funds, while older participants are more disposed to invest in GICs and bond funds. On average, participants in their 20s have 62.1 percent of their account balances invested in equity funds, in contrast to 39.8 percent for those in their 60s. Participants in their 20s invest 4.7 percent of their assets in GICs, while those in their 60s invest 20.6 percent. Bond funds, which represent 4.7 percent of the assets of participants in their 20s, amount to 9.0 percent of the assets of participants in their 60s. Investment options offered by 401(k) plans appear to influence asset allocation. For example, the addition of company stock substantially reduces the allocation to equity funds and the addition of GICs lowers allocations to bond and money funds. The average account balance (net of plan loans) for all participants was $47,004 at year-end 1998, which is 26 percent higher than the average account balance at year-end 1996. The median account balance was $13,038 at year-end 1998. The balances, however, represent only amounts with current employers and do not include amounts remaining in the plans of prior employers. The average balances of older workers with long tenure indicate that a mature 401(k) plan program will produce substantial account balances. For example, individuals in their 60s with at least 30 years of tenure have average account balances in excess of $185,000. The ratio of account balance to 1998 salary varies with salary, increasing slightly as earnings rise from $20,001 to $80,000, and falling a bit for salaries greater than $80,000. The increase in ratio likely reflects a greater propensity of higher-income participants to save, whereas the decline after $80,000 results from contribution and nondiscrimination rule constraints.