Advertisement
Economic Forecasts

Participation in Employer Sponsored Retirement Plans Falls

One big trend is: no job, no 401(k). But even among the employed, participation is down.

More evidence that Americans aren't saving enough for their retirement: Workers' participation in 401(k)s is down, both in absolute terms and as a share of the workforce. After hitting a high of 54.6 million full-time workers in 2000, participation slipped to 48.4 million last year, according to research by the Employee Benefit Research Institute (EBRI).

Advertisement - Article continues below

The number is expected to continue to drop. By 2012, only about 50% of workers will be taking part in the employer sponsored plans, down from 54.4% this year and 59.8% in 2000.

Unemployment is weighing heavily on workers' ability to save for retirement. The number of workers participating in employment-based retirement plans hit its lowest level since 1997. This is largely attributable to the decline in the number of workers as unemployment hovers around 10%.

A decline in the availability of employer sponsored plans is another cause. Just 61.8% of employers offered plans to full-time employees last year, compared with 68.6% in 1999. Many private sector employers have done away with traditional defined benefit pension plans, and in the recent recession, many have frozen or cut matching contributions, reducing the incentive to participate.

"This trend has important implications for workers, since having more opportunities to participate in an employment-based retirement plan greatly increases the amount of money a retiree is likely to have in retirement," says Craig Copeland, senior research associate at EBRI.

Advertisement
Advertisement - Article continues below
Advertisement - Article continues below

On the bright side, the number of hardship withdrawals and loan requests remains steady. Neither is expected to grow significantly over the next year, demonstrating the commitment of participants to stay the course in saving for retirement.

Still, lawmakers are worried. Sen. Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions, is promising a hard look next year at the impact of firms shifting from defined benefit to defined contribution plans. "We are facing a future where no one other than the rich will have the opportunity for a safe and secure retirement," he said at a committee hearing in October.

"People that work hard for their entire lives will find themselves teetering on the brink of poverty, unable to pay the basic costs of living," he said. "That is going to have drastic consequences for families and our country as a whole."

But solutions will likely be elusive. One proposal, by Sen. Jeff Bingaman (D-NM) and Rep. Richard Neal (D-MA), would require employers to put up to 3% of workers' pay in an IRA if employees aren't offered an employer sponsored plan. Republicans will fight the proposal, arguing that it would be burdensome to small businesses.

The problem will also complicate discussions over larger retirement issues, including the already thorny subjects of Social Security and Medicare benefits. It's clear that "the system is failing many Americans, and that the 'three-legged stool' of retirement security -- private pensions, personal savings and Social Security -- has gotten awfully wobbly," Harkin said at the October hearing.

Advertisement

Most Popular

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020

Recommended

Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020
Hail to Your Finances, Regardless of Who Wins Presidency
retirement planning

Hail to Your Finances, Regardless of Who Wins Presidency

Don’t try to navigate your investment choices based on election uncertainty. And don’t wait to find out who wins in November to make financial decisio…
June 30, 2020
Resources for alternative forms of transportation needed by many older adults
retirement

Resources for alternative forms of transportation needed by many older adults

For many older adults, having an alternative mode of transportation may be the difference between independence and social isolation.
June 29, 2020