Order Code RL30122 CRS Report for Congress Received through the CRS Web Pension Sponsorship and Participation: Summary of Recent Trends Updated September 10, 2004 Patrick J. Purcell Specialist in Social Legislation Domestic Social Policy Division Congressional Research Service ˜ The Library of Congress Pension Sponsorship and Participation: Summary of Recent Trends Summary According to the Census Bureau’s Current Population Survey (CPS), the number of workers in the private sector whose employer sponsored a retirement plan was essentially unchanged from 2002 to 2003. Among workers in the private sector between the ages of 25 and 64, the number whose employer sponsored a retirement plan was 53.3 million in 2003, compared to 53.2 million in 2002. The number of workers who participated in an employer-sponsored retirement plan increased from 43.2 million in 2002 to 43.5 million in 2003. The percentage of 25 to 64-year-old, employees in the private sector who participated in an employer-sponsored retirement plan rose from 46.3% in 2002 to 46.7% in 2003. A CRS analysis of the Current Population Survey indicates that, among workers 25 to 64 years old who were employed in the private sector and worked year-round, full-time: ! ! ! ! ! ! ! The percentage of workers whose employer sponsored a retirement plan was 62.0% in 2002 and 62.7% in 2003. The percentage of workers who participated in an employer-sponsored retirement plan was 53.5% in 2002 and 54.1% in 2003. Only 27.2% of workers at firms with fewer than 25 employers participated in an employer-sponsored retirement plan in 2003, compared to 49.9% of workers at firms with 25 to 99 employees and 67.6% of workers at firms with 100 or more employees. In 2003, there was relatively little difference in retirement plan participation among men and women who were employed full-time: 53.9% of men and 54.3% of women participated in an employer-sponsored retirement plan. In 2003, only 45.7% of private-sector workers 25 to 34 years old who were employed year-round, full-time participated in an employer-sponsored retirement plan, versus 57.4% of workers over age 35 . Black, Hispanic, and other non-white workers were less likely to have participated in an employer-sponsored retirement plan. Fifty-nine percent of white workers participated in a company-sponsored retirement plan in 2003, compared to 49.1% of black non-Hispanic workers, 32.6% of Hispanic workers, and 49.1% of other non-white workers (mainly Asian-American and Native American workers). Only 28.4% of workers whose earnings were in the lowest quartile in 2003 participated in a retirement plan at work, compared to 72.5% of workers whose earnings were in the top quartile. The percentage of part-year or part-time workers in the private sector whose employer sponsored a retirement plan fell from 43.0% in 2002 to 41.6% in 2003. The percentage of part-year or part-time workers in the private sector who participated in an employer sponsored retirement plan fell from 25.7.0% in 2002 to 25.3% in 2003. Contents Background: Demographic Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Congress and Retirement Income Policies . . . . . . . . . . . . . . . . . . . . . . . 2 Two Kinds of Retirement Plans:Defined Benefit and Defined Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Recent Trends in Retirement Plan Sponsorship and Participation . . . . . . . . 5 The number of defined benefit plans is declining . . . . . . . . . . . . . . . . . 5 Plan Participation by Full-Time vs. Part-Time Employment . . . . . . . . . 7 Retirement Plans and Employer Size . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Plan Participation Among Men and Women . . . . . . . . . . . . . . . . . . . . 11 Plan Participation by Employee Age . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Plan Participation by Employee Race . . . . . . . . . . . . . . . . . . . . . . . . . 14 Plan Participation by Employee Earnings . . . . . . . . . . . . . . . . . . . . . . 15 List of Tables Table 1. Labor Force Participation Rates in 2003+ . . . . . . . . . . . . . . . . . . . . . . . 2 Table 2. Participation in Employer-Sponsored Retirement Plans by Employees in the Private Sector, March 2003 . . . . . . . . . . . . . . . . . . . . . 6 Table 3. Participation in Retirement Plans by Full-Time vs. Part-Time Employment . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Table 4. Participation in Retirement Plans by Size of Firm . . . . . . . . . . . . . . . . 10 Table 5. Employee Participation in Retirement Plans, by Sex . . . . . . . . . . . . . . 11 Table 6. Employee Participation in Retirement Plans, by Age . . . . . . . . . . . . . . 13 Table 7. Employee Participation in Retirement Plans, by Race . . . . . . . . . . . . . . 14 Table 8. Participation in Retirement Plans by Annual Earnings . . . . . . . . . . . . . 16 Pension Sponsorship and Participation: Summary of Recent Trends Background: Demographic Trends The aging of the American population has made retirement income an issue of increasing concern to the Congress and the public. Although Americans are living longer than ever before, most retire before age 65. Moreover, while the nation’s population continues to grow, the decline in birth rates that followed the post-World War II “baby boom” and the continued lengthening of life spans will result in fewer workers relative to the number of retirees. These trends will affect the economic well-being of future retirees because pensions and Social Security benefits will be paid over longer periods of time; savings will have to be stretched over longer retirements; and Social Security benefits will have to be financed by a working population that is shrinking relative to the number of retirees. Americans are living longer than ever before. The average life expectancy of Americans born in 1960 was 69.7 years. It has been estimated that those who were born in 2001 will live for an average of 77.2 years.1 A man who reached age 65 in 1960 could expect to live another 13 years, while a woman who turned 65 had a remaining life expectancy of 16 years. A man who reached age 65 in 2001 could expect to live another 16.4 years, while a woman who turned 65 in 2001 had a remaining life expectancy of 19.4 years. As more people live into old age, the age-profile of the population will shift. In 1960, 16.7 million people in the United States — 9.2% of the population — were age 65 or older. In 2002, there were 35.6 million Americans age 65 or older, representing 12.3% of the population. By 2025, according to projections made by the Bureau of the Census, there will be 63.5 million people age 65 or older, comprising 18.2% of the U.S. population. Families are smaller than they were in the 1950s and 1960s. The decline in birth rates that followed the post-World War II “baby boom” may have an impact on the income of retirees in the first decades of the 21st century.2 Birth rates fell sharply between 1960 and 1975 and have remained low since then. In 1960, there were 118 births per 1,000 women between the ages of 15 and 44. By 1975, the birth rate had fallen to 66 per 1,000 women of child-bearing age, and since that year it has exceeded 70 births per 1,000 women only once.3 Social Security faces longterm financial difficulties in part because of the declining ratio of workers to retirees. 1 U.S. National Center for Health Statistics, Vital Statistics of the United States. 2 The Census Bureau defines the baby boom to include the years from 1946 to 1964. 3 In 1990, there were 71 live births per 1,000 women 15 to 44 years old. In 2001, there were 67 live births per 1,000 women 15 to 44 years old. (Vital Statistics of the United States.) CRS-2 In 1960, there were 5.7 people 20 to 64 years old for every person age 65 or older. By 2002, this ratio had fallen to 4.8. According to the U.S. Bureau of the Census, by 2025 the ratio of people ages 20 to 64 to people age 65 or older will have fallen to 3.0. As Social Security is currently financed, fewer workers paying taxes will mean that tax rates must be increased or benefits must be reduced. Labor force participation begins to drop after age 55. The proportion of the population that is either working or looking for work is called the “labor force participation rate.” As indicated by the data in Table 1, the labor force participation rate starts to drop significantly at about age 55. When income is no longer derived from earnings, individuals depend more on pensions, interest and dividends, withdrawals from their savings, and — when they become eligible through age or disability — Social Security. The aging of the U.S. population will place strains on the components of the traditional “three-legged stool” of retirement income: Social Security, pensions, and personal saving. Table 1. Labor Force Participation Rates in 2003+ Age Total number of Number in the Labor force people (000s) labor force (000s) participation rate Men Age 25 to 54 60,594 54,881 90.6% 19,784 17,352 87.7% Age 55 to 64 13,305 9,144 68.7% Age 65 and up 14,496 2,692 18.6% 62,695 47,428 75.6% 20,738 15,919 76.8% Age 55 to 64 14,423 8,168 56.6% Age 65 and up 19,758 2,099 10.6% Age 45 to 54 Women Age 25 to 54 Age 45 to 54 Source: U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings (January 2004) Congress and Retirement Income Policies. The Internal Revenue Code was first amended to provide favorable tax treatment for qualified pension and retirement plans in the 1920s. These provisions have been expanded and modified many times since then. Among the tax exemptions that apply to traditional “defined benefit” pension plans are the deduction of pension contributions from employer income, exclusion of employer contributions to pension plans from employee income, and tax exemption of the earnings of pension trusts.4 In “defined contribution” plans such as those authorized under section 401(k) of the tax code, 4 Defined benefit pensions are taxed when the employee receives benefits during retirement. CRS-3 income taxes are deferred until retirement on employer and employee contributions to the plan and on the investment earnings of the plan. By establishing the tax-favored status of pension programs and defining the terms under which tax exemptions and deductions are granted, federal tax law has both encouraged the growth of retirement plan coverage among workers and shaped the development of pensions and retirement savings plans. Congress also has sought to protect the pension benefits earned by workers through direct regulation of pension plans, most notably through the Employee Retirement Income Security Act of 1974 (P.L. 93-406). ERISA, too, may have influenced the development of employersponsored retirement plans. Since its enactment, defined contribution (DC) plans have proliferated while the number of defined benefit (DB) plans has fallen. Two Kinds of Retirement Plans:Defined Benefit and Defined Contribution. Retirement programs are legally classified as either defined benefit plans or defined contribution plans. In defined benefit or “DB” plans, the retirement benefit usually is based on an employee’s salary and number of years of service. With each year of service, a worker accrues a benefit equal to either a fixed dollar amount per month or year of service or a percentage of his or her final pay or average pay. A defined contribution or “DC” plan is much like a savings account maintained by the employer on behalf of each participating employee. The employer contributes a specific dollar amount or percentage of pay into the account, which is usually invested in stocks and bonds. In some plans, the size of the employer’s contribution depends on the amount the employee contributes to the plan. When the worker retires, the amount of retirement benefits that he or she receives will depend on the balance in the account, which is the sum of all the contributions that have been made plus interest, dividends, and capital gains (or losses). The worker usually has the choice of receiving these funds in the form of a life-long annuity,5 as a series of fixed payments over a period of years, or as a lump sum. In recent years, many employers have converted their traditional pensions to hybrid plans that have characteristics of both DB and DC plans. The most popular of these hybrids has been the cash balance plan. A cash balance plan looks like a DC plan in that the accrued benefit is defined in terms of an account balance. The employer makes contributions to the plan and pays interest on the accumulated balance. However, in a cash balance plan, the account balances are merely bookkeeping devices. They are not individual accounts that are owned by the participants. Legally, therefore, a cash balance plan is a defined benefit plan. Who bears the investment risk? In a defined benefit plan, it is the employer who bears the investment risk of the plan, while in a defined contribution plan it is the employee who bears the investment risk. In a defined benefit plan, the employer promises to provide retirement benefits equal to a certain dollar amount or a specific percentage of the employee’s pay. The employer contributes money to a 5 Retirees can also choose a joint and survivor annuity in which a surviving spouse continues to receive an annuity after the retired worker’s death. CRS-4 pension trust that is invested in stocks, bonds, real estate, or other assets. Retirement benefits are paid from this trust fund. The employer is at risk for the amount of retirement benefits that have been promised to employees and their survivors. If there are insufficient funds in the pension trust to pay the accrued benefits, the firm that sponsors the pension plan is legally obligated to make up the difference by paying more money into the pension fund. In a defined contribution plan, the employer bears no risk beyond its obligation to make contributions to each employee’s retirement account. In these plans, it is the employee who bears the risk that his or her retirement account will increase in value by an amount sufficient to provide adequate income during retirement. If the contributions made to the account by the employer and the employee are insufficient, or if the securities in which the account is invested lose value or increase in value too slowly, the employee risks having an income in retirement that is not sufficient to maintain his or her desired standard of living. If this situation occurs, the worker might choose to delay retirement. Many factors affect a firm’s decision to sponsor a retirement plan and a worker’s decision to participate in the plan. In any given year, changes in the business climate — inflation, interest rates, wage increases, the cost of other benefits (such as health insurance), trends in business revenues and profits — could weigh more heavily in a firm’s decision to sponsor an employee retirement plan than the potential tax advantages it could gain by establishing a plan. Likewise, an employee’s decision to participate or not to participate in a retirement plan may be affected by such variables as the rate of growth of wages, the rising cost of employee health insurance premiums, his or her confidence in the financial status of Social Security, and whether another family member already participates in a retirement plan. Encouraging sponsorship of retirement plans by small firms is an important issue to the Congress in part because of the large number of people employed by small businesses. In 2003, for example, almost 36 million people worked for firms with fewer than 25 employees.6 The relatively low rates of employer sponsorship and employee participation in retirement plans at small businesses have prompted Congress to look for ways to make it easier for small employers to establish and maintain retirement plans for their employees. Because small employers may be reluctant to take on the financial risk and administrative burden of establishing a defined-benefit pension plan, Congress has sought to encourage greater retirement plan sponsorship among small businesses mainly by easing the financial and reporting requirements associated with certain types of defined contribution pension plans. The Revenue Act of 1978 (P.L. 95-600) authorized a defined contribution plan called the Simplified Employee Pension (SEP).7 More recently, the Small Business 6 7 Full-time and part-time wage and salary workers. (Source: Current Population Survey.) P.L. 95-600 authorized tax exemption only for employer contributions to a SEP. The Tax Reform Act of 1986 (P.L. 99-514) allowed workers in firms with fewer than 25 employees to contribute to a SEP on a tax-deferred basis through salary reduction (SARSEP). P.L. 104188 authorized SIMPLE plans to replace SARSEPs. Firms may continue to establish SEPs (continued...) CRS-5 Job Protection Act of 1996 (P.L. 104-188) authorized another type of defined contribution plan called the Savings Incentive Match Plan for Employees (SIMPLE).8 Nevertheless, rates of retirement plan sponsorship and participation in small firms continue to lag behind the rates achieved in larger firms. Recent Trends in Retirement Plan Sponsorship and Participation The number of defined benefit plans is declining. According to the Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor, the number of defined benefit plans declined from 175,000 to 49,900 between 1983 and 1999.9 The decline in the number of DB plans resulted mainly from the termination of a large number of small plans. Between 1983 and 1999, the number of defined benefit pension plans with fewer than 100 participants fell from 149,164 to 35,696, a decline of 76.1%. The number of large DB plans fell, too, declining form 25,979 in 1983 to 14,199, or 45.3%. However, while the decline in the number of plans was larger among small plans, the decline in the number of participants was greater among large plans. The number of active participants in small DB plans fell from 1,774,000 in 1983 to 515,000 in 1999.10 At the same time, the number of active participants in large DB plans fell from 28,104,000 to 22,115,000. Retirement Plan Financial Trends. Financial information reported by employers to the U.S. Department of Labor shows the extent to which sponsorship of retirement plans has shifted from DB plans to DC plans. In 1975, pension plans held total assets of $260 billion, of which 72% ($186 billion) was held by defined benefit plans. By 1999, pension plans held total assets of $4.4 trillion, but the share held by DB plans had fallen to 47% ($2.1 trillion). Contributions to pension plans shifted even more dramatically during this period. In 1975, employer and employee contributions to pension plans totaled $37 billion. Of this amount, $24 billion (65%) was contributed to DB plans. In 1999, employers and employees contributed $216 billion to pension plans, but 86% of the total ($186 billion) was contributed to defined contribution plans. Benefit payments, too, reflected the impact of the increasing prevalence of DC plans. In 1975, 68% of all benefits paid by privatesector pension plans ($13 billion out of $19 billion) were paid by defined benefit pensions. In 1999, 62% of the $315 billion in benefit payments were disbursed from 7 (...continued) funded exclusively by employer contributions, but new SARSEPs were prohibited after December 31, 1996. Previously existing SARSEPs may continue as before. 8 For more information about SEP and SIMPLE, see CRS Report 96-243, Simplified Employee Pensions: A Fact Sheet, and CRS Report 96-758, Pension Reform: SIMPLE Plans for Small Employers. 9 U.S. Department of Labor, Employee Benefits Security Administration, Private Pension Plan Bulletin, no. 12, Summer 2004 10 EBSA, Private Pension Plan Bulletin, no. 12, Summer 2004. The number of active participants is the total number of participants minus those who have retired or who have separated from the employer with a vested benefit but are not retired. CRS-6 DC plans. In that year, DC plans paid $195 billion in benefits, while DB plans paid out $119 billion in benefits. Surveys of Employers. The Bureau of Labor Statistics collects data from employers about paid leave, health insurance, retirement plan participation, flexible spending accounts, and other employee benefits as part of the National Compensation Survey. The National Compensation Survey is conducted among a nationally representative sample of business establishments. The term establishment usually refers to a single place of business at a particular location or all branches of a business in a particular metropolitan area or county. An establishment might be a branch or small operating unit of a larger firm. In contrast, a firm comprises all of the establishments that together form a corporation, partnership, or other business entity.11 According to the data collected from employers through the National Compensation Survey, 65% of employees in medium and large private establishments participated in an employer-sponsored pension or retirement savings plan in 2003. (See Table 2.) Participation in company-sponsored retirement plans was substantially lower in small businesses. In 2003, only 35% of employees in businesses with fewer than 100 employees participated in an employer-sponsored pension or retirement savings plan. The data from the NCS also indicate that, among firms of all sizes, 58% of full-time employees participated in an employer-sponsored retirement plan in 2003, compared to just 18% of part-time workers. Table 2. Participation in Employer-Sponsored Retirement Plans by Employees in the Private Sector, March 2003 Type of retirement plan All types Defined benefit Defined contribution Establishment Size 1-99 workers 35% 8% 31% 100 or more workers 65% 33% 51% Full-time workers 58% 24% 48% Part-time workers 18% 8% 14% All workers 49% 20% 40% Work Schedule Note: Data represent 103 million workers employed in the private sector. Source: National Compensation Survey, U.S. Department of Labor. 11 In the Census Bureau’s Current Population Survey, employer characteristics are reported at the level of the firm, which may include more than one establishment. CRS-7 Surveys of Households. The Current Population Survey (CPS) is conducted each month by the Bureau of the Census among a nationally representative sample of 60,000 to 100,000 households, primarily for the purpose of estimating the rates of employment and unemployment. Each March, supplemental questions are asked about employment, income, health insurance, retirement plan participation, and receipt of government benefits during the previous calendar year. These data allow us to tabulate the number and percentage of workers who reported whether their employer offered a retirement plan and whether they participated in the plan. These responses can then be categorized by certain demographic and economic characteristics, such as the worker’s age, race, sex, income, and the size of firm at which they worked. Unfortunately, however, because the CPS asks only two pension-related questions — if the worker’s employer offers a retirement plan and if the worker participates — we cannot ascertain whether the plan is a defined benefit plan or a defined contribution plan. Plan Participation by Full-Time vs. Part-Time Employment. Table 3 compares retirement plan participation for year-round, full-time workers in the private sector to those who were employed part-year or part-time. Workers with part-year or part-time employment are much less likely to be employed by a firm that sponsors a retirement plan. Part-time and part-year workers also are less likely to participate if their employer sponsors a plan. The proportion of year-round, full-time workers employed at firms that sponsored a retirement plan was 62.0% in 2002 and 62.7% in 2003. The participation rate among year-round, full-time workers whose employer sponsored a retirement plan was 53.5% in 2002 and 54.1% in 2003. Plan participation peaked among fulltime workers in 1999 at 58.0%. Between 2002 and 2003, the proportion of part-time or part-year workers employed by firms that sponsored a retirement plan fell from 43.0% to 41.6%. The rate of participation among part-year and part-time workers whose employer sponsored a retirement plan fell from 25.7% to 25.3%. The lower rate of retirement plan participation among part-year and part-time workers is one of the reasons that women are less likely than men to participate in a company-sponsored retirement plan. There is little difference in retirement plan participation between men and women who work year-round, full-time. (See Table 5.) Women, however, are more likely than men to work part-year or part-time. Data from the Current Population Survey show that in 2003, 81.5% of working men between the ages of 25 and 64 were employed year-round, full-time compared to 66.2% of working women in this age-group. Consequently, while women who worked full-time in 2003 were as likely as their male counterparts to have participated in a retirement plan (54% of both groups), the retirement plan participation rate among all working women 25 to 64 years old in the private sector in 2003 was lower than the participation rate among all working men in that age group (44% vs. 49%).12 12 CRS estimates based on the March 2004 CPS (not shown in accompanying tables). CRS-8 Table 3. Participation in Retirement Plans by Full-Time vs. Part-Time Employment (Private-sector wage and salary workers, ages 25 to 64) Full-time 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Part-time 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 All workers 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Employer sponsors plan Employees participating Workers (thousands) Workers Percent Participants Percent 57,156 60,687 63,144 64,002 65,931 67,065 70,177 69,265 69,093 69,306 37,080 38,344 41,149 41,855 44,095 44,794 46,499 45,097 42,805 43,450 64.9 63.2 65.2 65.4 66.9 66.8 66.3 65.1 62.0 62.7 32,043 33,298 35,535 36,184 38,092 38,901 40,304 38,678 36,973 37,464 56.1 54.9 56.3 56.5 57.8 58.0 57.4 55.8 53.5 54.1 23,840 23,790 24,022 23,508 21,937 21,815 21,420 23,449 24,104 23,714 9,347 9,348 9,673 9,774 9,679 9,166 9,708 10,535 10,353 9,868 39.2 39.3 40.3 41.6 44.1 42.0 45.3 44.9 43.0 41.6 5,261 5,508 5,406 5,465 5,615 5,562 5,756 6,444 6,192 5,991 22.1 23.2 22.5 23.3 25.6 25.5 26.9 27.5 25.7 25.3 80,996 84,477 87,166 87,510 87,868 88,880 91,597 92,714 93,197 93,020 46,427 47,692 50,822 51,629 53,774 53,960 56,207 55,632 53,158 53,318 57.3 56.5 58.3 59.0 61.2 60.7 61.4 60.0 57.0 57.3 37,304 38,806 40,941 41,649 43,707 44,463 46,060 45,122 43,165 43,455 46.1 45.9 47.0 47.6 49.7 50.0 50.3 48.7 46.3 46.7 Source: CRS analysis of the Current Population Survey, various years. CRS-9 Retirement Plans and Employer Size. The data from the CPS show that retirement plan participation in small firms rose in the late 1990s, but has recently declined. The CPS data also indicate that access to a company-sponsored retirement plan remains substantially lower in small firms than in firms with 100 or more employees. The data displayed in Table 4 show that from 1994 to 2003, the number of workers between the ages of 25 and 64 who were employed in the private sector and worked year-round, full-time increased from 57.2 million to 69.3 million. At the same time, the number of such workers whose employer offered a retirement plan increased from 37.1 million to 43.5 million. The proportion of year-round, full-time workers who were employed at firms that offered a retirement plan rose from 64.9% in 1994 to 66.9% in 1998. It has since fallen to 62.7%. Since 1994, the proportion of workers in larger firms whose employer sponsors a retirement plan has fallen. Among employees at businesses with 100 or more workers, 78.4% worked at firms that sponsored a retirement plan in 2003, 3.4 percentage points lower than the 81.8% of workers who were employed by large firms that sponsored a retirement plan in 1994. Nevertheless, workers at large firms remain substantially more likely than employees of small businesses to work for an employer that sponsors a retirement plan. In 2003, 31.4% of full-time workers in businesses with fewer than 25 employees were employed at firms that sponsored a retirement plan, down from a high of 34.2% in 2000. This was still higher than the 26.5% level of 1994. Among workers in firms with 25 to 99 employees, 58.2% were employed at firms that sponsored a retirement plan in 2003, compared to 53.4% in 1994. Table 4 also shows the percentage of year-round, full-time employees in the private sector who participated in an employer-sponsored retirement plan.13 This statistic takes into account the impact of employers that do not sponsor a plan on overall retirement plan participation rates. Among firms of all sizes, the proportion of year-round, full-time employees between the ages of 25 and 64 who participated in a retirement plan rose slightly from 53.5% in 2002 to 54.1% in 2003. This was lower than the participation rate of 56.1% in 1994. In firms with fewer than 25 employees, 27.2% of full-time employees between the ages of 25 and 64 participated in a retirement plan in 2003, down from a peak of 29.3% in 2000, but higher than the 22.8% who participated in a plan in 1994. In firms with 25 to 99 employees, retirement plan participation rose from 47.8% in 2002 to 49.9% in 2003. This was higher than the 1994 participation rate of 44.9%. Participation in retirement plans among workers in firms with 100 or more employees also rose slightly between 2002 and 2003, increasing from 66.6% to 67.6%. This was 3.4 percentage points lower than the participation rate of 71.0% in 1994. 13 Not all employees whose employer sponsors a retirement plan are eligible to participate. For example, employees who have been employed for less than one year or who work fewer than 1,000 hours per year can be excluded. CRS-10 Table 4. Participation in Retirement Plans by Size of Firm (Private-sector wage and salary workers, ages 25 to 64, employed year-round, full-time) Size of firm (Employees) All firms 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Under 25 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 25 to 99 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 100 or more 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Workers (thousands) Employer sponsors plan Employees participating Workers Percent Participants Percent 57,156 60,687 63,145 64,001 65,931 67,065 70,177 69,266 69,093 69,306 37,080 38,348 41,149 41,855 44,095 44,794 46,499 45,097 42,805 43,450 64.9 63.2 65.2 65.4 66.9 66.8 66.3 65.1 62.0 62.7 32,043 33,298 35,535 36,184 38,092 38,901 40,304 38,678 36,973 37,464 56.1 54.9 56.3 56.5 57.8 58.0 57.4 55.8 53.5 54.1 13,120 14,627 15,343 14,732 15,101 15,582 16,591 17,061 17,878 18,616 3,479 3,715 4,365 4,356 4,789 5,259 5,575 5,788 5,658 5,850 26.5 25.4 28.5 29.6 31.7 33.4 34.2 33.9 31.7 31.4 2,996 3,109 3,713 3,722 4,072 4,522 4,857 4,965 4,880 5,064 22.8 21.3 24.2 25.3 27.0 29.0 29.3 29.1 27.3 27.2 8,476 9,108 9,421 9,691 9,940 9,974 10,492 10,466 10,719 10,540 4,526 4,923 5,378 5,416 5,794 5,881 6,139 6,086 6,030 6,133 53.4 54.1 57.1 55.9 58.3 59.0 58.5 58.2 56.3 58.2 3,805 4,188 4,531 4,602 4,838 4,933 5,186 5,067 5,126 5,254 44.9 46.0 48.1 47.5 48.7 49.5 49.4 48.4 47.8 49.9 35,560 36,951 38,381 39,578 40,890 41,509 43,094 41,739 40,496 40,149 29,075 29,706 31,407 32,083 33,513 33,654 34,692 33,223 31,116 31,466 81.8 80.4 81.8 81.1 82.0 81.1 80.5 79.6 76.8 78.4 25,242 26,000 27,291 27,860 29,182 29,447 30,262 28,645 26,967 27,146 71.0 70.4 71.1 70.4 71.4 70.9 70.2 68.6 66.6 67.6 Source: CRS analysis of the Current Population Survey, various years. CRS-11 Plan Participation Among Men and Women. Table 5 shows the rates of participation in employer-sponsored retirement plans by men and women between the ages 25 and 64 who were employed in the private sector and worked year-round, full-time. Between 1994 and 1999, the proportion of men whose employer sponsored a retirement plan rose from 64.9% to 66.9%. Since then, it has dropped to 61.8%. The proportion of women who worked at firms that sponsored a retirement plan increased from 64.9% in 1994 to a high of 67.2% in 1998. In 2003, 64.0% of women who worked year-round, full-time were employed at firms that sponsored a retirement plan. Thus, in 2003 women who were employed year-round, full-time were slightly more likely than men to work for an employer that sponsored a retirement plan. Men and women were almost equally likely to participate in an employer-sponsored retirement plan. In 2003, 53.9% of men who were employed year-round, full-time participated in a company-sponsored retirement plan, compared to 54.3% of women. Both of these participation rates were lower than the peak participation rates of 1998-1999. The participation rate for men was 5.3 percentage points lower in 2003 than in 1999. The participation rate for women was 2.0 percentage points lower in 2003 than in 1998. Table 5. Employee Participation in Retirement Plans, by Sex (Private-sector wage and salary workers, ages 25 to 64, employed year-round, full-time) Workers (thousands) Men 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Women 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Employer sponsors plan Employees participating Workers Percent Participants Percent 34,329 36,504 37,912 38,207 39,399 39,757 41,516 40,976 40,851 40,963 22,265 23,008 24,541 24,796 26,270 26,596 27,463 26,539 25,100 25,306 64.9 63.0 64.7 64.9 66.7 66.9 66.2 64.8 61.4 61.8 19,617 20,359 21,577 21,887 23,160 23,553 24,220 23,164 22,033 22,083 57.1 55.8 56.9 57.3 58.8 59.2 58.3 56.5 53.9 53.9 22,827 24,182 25,232 25,795 26,532 27,308 28,661 28,290 28,242 28,342 14,815 15,336 16,609 17,060 17,825 18,198 19,036 18,558 17,704 18,144 64.9 63.4 65.8 66.1 67.2 66.6 66.4 65.6 62.7 64.0 12,426 12,939 13,958 14,297 14,932 15,349 16,083 15,513 14,939 15,381 54.4 53.5 55.3 55.4 56.3 56.2 56.1 54.8 52.9 54.3 Source: CRS analysis of the Current Population Survey, various years. CRS-12 Plan Participation by Employee Age. Table 6 displays rates of participation in employer-sponsored retirement plans among workers who were employed in the private sector and worked year-round, full-time, according to their age. Young workers — ages 25 to 34 — are less likely than middle-aged and older workers to be employed at a firm that sponsors a retirement plan. They also are less likely to participate in retirement plans than are older workers. In 2003, 58.2% of workers 25 to 34 years old worked for an employer that sponsored a retirement plan, and 45.7% participated in a company-sponsored plan. Thus, 78.5% of those who worked for a firm that sponsored a plan participated in the plan (0.457/0.582 = 0.785). In contrast, among workers 35 to 64 years old, 64.4% worked at firms that sponsored a retirement plan, and 57.4% participated in a company-sponsored plan. Thus, among workers age 35 or older who worked for a firm that sponsored a retirement plan, 89.1% participated in the plan (0.574/0.644 = 0.891)14 14 Some of the difference in participation rates is because workers under 35 are somewhat more likely to be in their first year with an employer and can be excluded from participating in the plan. Part-time or part-year workers and those under 21 also can be excluded, but neither of these groups is represented in Table 6. CRS-13 Table 6. Employee Participation in Retirement Plans, by Age (Private-sector wage and salary workers, ages 25 to 64, employed year-round, full-time) Employee age 25 to 34 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 35 to 44 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 45 to 54 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 55 to 64 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Workers (thousands) Employer sponsors plan Workers Percent Employees participating Participants Percent 19,488 19,759 19,744 19,829 19,737 19,535 20,398 19,542 19,389 19,288 12,038 11,673 12,389 12,508 12,455 12,513 12,803 11,908 11,090 11,221 61.8 59.1 62.8 63.1 63.1 64.1 62.8 60.9 57.2 58.2 9,460 9,337 9,865 9,832 9,896 9,903 10,173 9,330 8,638 8,822 48.5 47.3 50.0 49.6 50.1 50.7 49.9 47.7 44.6 45.7 18,924 20,439 21,360 21,528 22,287 22,812 23,362 22,445 21,826 21,328 12,492 13,235 14,161 14,120 15,125 15,387 15,479 14,841 13,681 13,428 66.0 64.8 66.3 65.6 67.9 67.5 66.3 66.1 62.7 63.0 11,082 11,742 12,337 12,377 13,211 13,440 13,559 12,882 11,879 11,609 58.6 57.5 57.8 57.5 59.3 58.9 58.0 57.4 54.4 54.4 12,973 14,042 15,278 15,576 16,547 17,238 18,489 18,625 18,796 19,227 8,839 9,240 10,259 10,638 11,615 12,053 12,951 12,650 12,308 12,752 68.1 65.8 67.2 68.3 70.2 69.9 70.1 67.9 65.5 66.3 8,117 8,381 9,290 9,760 10,519 11,089 11,787 11,324 11,204 11,521 62.6 59.7 60.8 62.7 63.6 64.3 63.8 60.8 59.6 59.9 5,771 6,446 6,763 7,069 7,359 7,479 7,929 8,653 9,082 9,463 3,711 4,196 4,340 4,588 4,900 4,841 5,267 5,698 5,725 6,045 64.3 65.1 64.2 64.9 66.6 64.7 66.4 65.9 63.0 63.9 3,384 3,838 4,043 4,215 4,466 4,470 4,785 5,141 5,252 5,512 58.7 59.5 59.8 59.6 60.7 59.8 60.3 59.4 57.8 58.3 Source: CRS analysis of the Current Population Survey, various years. CRS-14 Plan Participation by Employee Race. The March 2003 CPS introduced newly expanded categories of race and ethnicity, making comparisons with prior years problematic. In Table 7, race and ethnicity are categorized as white nonHispanic, black non-Hispanic, Hispanic, and other. The “other”category includes mainly persons whose heritage is Asian, Native American, Eskimo, or Pacific Islander. In 2003, the likelihood of being employed at a firm that sponsored a retirement plan was highest for white non-Hispanic workers and lowest for Hispanic workers. Black non-Hispanic workers and “Asian/Other” workers were about equally likely to work for an employer that sponsored a retirement plan. Among white non-Hispanic workers, 67.6% worked for an employer that sponsored a retirement plan, and 59.3% participated in an employer-sponsored plan. Among Hispanic workers, just 41.3% worked for an employer that sponsored a retirement plan and only 32.6% participated in an employer-sponsored retirement plan. Of workers who classified their race and ethnicity as black non-Hispanic, 59.5% worked for an employer that sponsored a plan and 49.1% participated in a plan, while among Asian-American and other workers, 58% worked for an employer that sponsored a retirement plan and 49% participated in a plan. Table 7. Employee Participation in Retirement Plans, by Race (Private sector wage and salary workers, ages 25 to 64, employed year-round, full-time) Employee Race Workers (thousands) Employer sponsors plan Percent Workers Employees participating Percent Participants White, non-Hispanic 2002 49,012 2003 48,524 32,711 32,800 66.7 67.6 28,836 28,759 58.8 59.3 Black, non-Hispanic 2002 7,078 2003 7,241 4,156 4,311 58.7 59.5 3,363 3,555 47.5 49.1 Hispanic 2002 2003 8,942 9,073 3,582 3,750 40.1 41.3 2,777 2,956 31.1 32.6 Other 2002 2003 4,062 4,468 2,356 2,588 58.0 57.9 1,996 2,193 49.2 49.1 Source: CRS analysis of the Current Population Survey, various years. CRS-15 Plan Participation by Employee Earnings. Table 8 shows the relationship between earnings and participation in an employer-sponsored retirement plan. In Table 8, workers’ annual earnings from wages and salaries — as reported on the Current Population Survey — are ranked by quartile. In 2003, one-quarter of private-sector wage and salary workers between the ages of 25 and 64 who were employed year-round, full-time earned more than $56,590. Another quarter had earnings between $36,360 and $56,590. The next quarter had earnings between $24,400 and $36,360, and those in the lowest quartile earned less than $24,400. In 2003, 77% of year-round, full-time workers in the private sector with annual earnings in the top quartile were employed by firms that sponsored a retirement plan, and 72.5% of workers in the top earnings quartile participated in a retirement plan. Both of these percentages were lower than the rates in 1999, which was the peak year of plan participation for this quartile during the ten-year period shown in the table. In 1999, 80.2% of year-round, full-time workers in the private sector with annual earnings in the top quartile were employed by firms that sponsored a retirement plan, and 75.9% of workers in the top earnings quartile participated in a retirement plan. The percentage of workers employed at firms that sponsored a retirement plan and the percentage who participated in these plans were progressively lower in each of three lowest earnings quartiles. For example, among workers in the lowest earnings quartile in 2003, 41.2% were employed at firms that sponsored a retirement plan, and 28.4% of workers in the bottom quartile participated in a retirement plan. Both of these percentages were lower than the rates in 1998, which was the peak year of plan participation for this quartile during the ten-year period shown in the table. In 1998, 46.9% of year-round, full-time workers in the private sector with annual earnings in the bottom quartile were employed by firms that sponsored a retirement plan, and 33.1% of workers in the bottom earnings quartile participated in a retirement plan. Low-wage workers are not only less likely to work for an employer that sponsors a retirement plan, they also are less likely to participate if a plan is offered. Among employees whose earnings in 2003 were in the top quartile, 77.0% worked for an employer that sponsored a retirement plan and 72.5% participated in a retirement plan. Therefore, the participation rate among employees in the top earnings quartile whose employer sponsored a retirement plan was 94.2% (0.725/0.770 = 0.942). Among workers whose 2003 earnings were in the bottom quartile, only 41.2% worked for an employer that sponsored a retirement plan and just 28.5% participated in a retirement plan. Thus, the participation rate among lowwage employees whose employer sponsored a retirement plan was 68.9% (0.284/0.412 = 0.689). CRS-16 Table 8. Participation in Retirement Plans by Annual Earnings (Private-sector wage and salary workers, ages 25 to 64, employed year-round, full-time) Employer sponsors plan Worker's Annual Percentage of workers Earnings Top Earnings Quartile 1994 78.3 1995 77.1 1996 79.7 1997 79.4 1998 79.6 1999 80.2 2000 80.2 2001 78.2 2002 75.3 2003 77.0 Third Earnings Quartile 1994 74.3 1995 72.4 1996 74.7 1997 75.1 1998 74.9 1999 75.7 2000 74.3 2001 74.2 2002 70.9 2003 71.0 Second Earnings Quartile 1994 63.4 1995 61.0 1996 65.3 1997 63.9 1998 67.1 1999 66.0 2000 66.0 2001 63.9 2002 61.3 2003 61.6 Bottom Earnings Quartile 1994 44.9 1995 42.4 1996 45.4 1997 44.5 1998 46.9 1999 45.5 2000 44.9 2001 44.9 2002 41.4 2003 41.2 Employee participates Percentage of workers 74.1 73.0 75.2 74.7 75.0 75.9 75.5 73.3 71.0 72.5 67.4 65.1 67.8 67.6 67.8 68.0 67.1 66.7 63.3 63.6 53.4 51.3 55.0 53.6 56.3 56.3 55.5 52.9 51.6 51.7 31.2 30.4 32.4 31.7 33.1 32.3 32.1 31.5 29.5 28.4 Source: CRS analysis of the Current Population Survey, various years.