Order Code RL30122
CRS Report for Congress
Received through the CRS Web
Pension Sponsorship and Participation:
Summary of Recent Trends
Updated August 31, 2006
Patrick Purcell
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service The Library of Congress Washington, DC 20540
Pension Sponsorship and Participation:
Summary of Recent Trends
Summary
According to the Census Bureau’s Current Population Survey (CPS), the
number of private-sector workers between the ages of 25 and 64 whose employer
sponsored a retirement plan fell from 53.1 million in 2004 to 52.5 million in 2005.
The number of workers who participated in an employer-sponsored retirement plan
fell from 43.3 million in 2004 to 43.1 million in 2005. The percentage of 25 to 64-
year-old workers in the private sector who participated in an employer-sponsored
retirement plan declined from 46.3% in 2004 to 45.0% in 2005.
A CRS analysis of the Current Population Survey indicates that, among private-
sector workers 25 to 64 years old who were employed year-round, full-time in 2005:
!
The percentage of workers whose employer sponsored a retirement
plan fell from 61.8% in 2004 to 59.7% in 2005.
!
The percentage of workers who participated in an employer-
sponsored retirement plan declined from 53.4% in 2004 51.6% in
2005.
!
Only 25.3% of workers at firms with fewer than 25 employers
participated in an employer-sponsored retirement plan in 2005,
compared to 45.2% of workers at firms with 25 to 99 employees and
65.4% of workers at firms with 100 or more employees.
!
There was relatively little difference in retirement plan participation
among men and women who were employed full-time: 51.4% of
men and 52.0% of women participated in an employer-sponsored
retirement plan in 2005.
!
Only 42.0% of private-sector workers 25 to 34 years old who were
employed year-round, full-time participated in an employer-
sponsored retirement plan in 2005, versus 55.2% 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-
seven percent of white workers participated in a company-sponsored
retirement plan in 2005, compared to 46.5% of black non-Hispanic
workers, 29.0% of Hispanic workers, and 48.8% of other non-white
workers (mainly Asian-American and Native American workers).
!
Only 27.5% of workers whose earnings were in the lowest quartile
in 2005 (those with earnings under $25,000) participated in a
retirement plan at work, compared to 70.3% of workers whose
earnings were in the top quartile (those with earnings above
$60,000).
!
The percentage of part-year or part-time workers in the private sector
whose employer sponsored a retirement plan was 39.9% in 2005,
down from 41.5% in 2004. The percentage of part-year or part-time
workers in the private sector who participated in an employer
sponsored retirement plan fell from 24.8% in 2004 to 24.4% in
2005.
Contents
Background: Employment and an Aging Workforce . . . . . . . . . . . . . . . . . . 1
Life expectancy continues to increase . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Labor Force Participation Begins to Drop After Age 55 . . . . . . . . . . . . 1
Congress and Retirement Income Policies . . . . . . . . . . . . . . . . . . . . . . . 2
Two Kinds of Retirement Plans: Defined Benefit and
Defined Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Number of Defined Benefit Plans Is Declining . . . . . . . . . . . . . . . 4
Recent Trends in Retirement Plan Sponsorship and Participation . . . . . . . . 5
The Current Population Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Plan Participation by Full-Time vs. Part-Time Employment . . . . . . . . . 5
Retirement Plans and Employer Size . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Plan Participation Among Men and Women . . . . . . . . . . . . . . . . . . . . . 9
Plan Participation by Employee Age . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Plan Participation by Employee Race . . . . . . . . . . . . . . . . . . . . . . . . . 12
Plan Participation by Employee Earnings . . . . . . . . . . . . . . . . . . . . . . 13
An Alternative Measure of Retirement Plan Participation . . . . . . . . . . . . . 15
The National Compensation Survey . . . . . . . . . . . . . . . . . . . . . . . . . . 15
List of Tables
Table 1. Labor Force Participation Rates in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 2
Table 2. Participation in Retirement Plans
by Full-Time vs. Part-Time Employment . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 3. Participation in Retirement Plans by Size of Firm . . . . . . . . . . . . . . . . . 8
Table 4. Employee Participation in Retirement Plans, by Sex . . . . . . . . . . . . . . . 9
Table 5. Employee Participation in Retirement Plans, by Age . . . . . . . . . . . . . . 11
Table 6. Employee Participation in Retirement Plans, by Race . . . . . . . . . . . . . 12
Table 7. Participation in Retirement Plans by Annual Earnings . . . . . . . . . . . . . 14
Table 8. Percentage of Private-sector Employees Participating in
Employer-Sponsored Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Pension Sponsorship and Participation:
Summary of Recent Trends
Background: Employment and an Aging Workforce
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.
Life expectancy continues to increase. The average life expectancy of
Americans born in 1960 was 69.7 years. It has been estimated that those who were
born in 2005 will live for an average of 77.8 years.1 A man who reached age 65 in
1960 could expect to live another 13 years, while a woman who turned 65 in 1960
had a remaining life expectancy of 16 years. A man who reached age 65 in 2003
could expect to live another 16.8 years, while a woman who turned 65 in 2003 had
a remaining life expectancy of 19.8 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 2005, there were 36.7 million
Americans age 65 or older, representing 12.4% 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.
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 after 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.
1 U.S. National Center for Health Statistics, Vital Statistics of the United States.
CRS-2
Table 1. Labor Force Participation Rates in 2005
Total Number
Number in the
Labor Force
Age
of People
Labor Force
Participation Rate
(thousands)
(thousands)
(percent)
Men
Age 25 to 54
61,208
55,385
90.5
Age 45 to 54
20,585
18,053
87.7
Age 55 to 64
14,502
10,045
69.3
Age 65 and up
14,944
2,959
19.8
Women
Age 25 to 54
62,967
47,387
75.3
Age 45 to 54
21,521
16,349
76.0
Age 55 to 64
15,663
8,934
57.0
Age 65 and up
20,125
2,319
11.5
Source: U.S. Department of Labor, Bureau of Labor Statistics, Employment and
Earnings (January 2006).
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.2 In “defined
contribution” plans such as those authorized under section 401(k) of the tax code,
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
(ERISA, P.L. 93-406). ERISA, too, may have influenced the development of
employer-sponsored 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
2 Defined benefit pensions are taxed when the employee receives benefits during retirement.
CRS-3
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 the retirement benefit 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 as a lump sum, a series of fixed payments over a
period of years, or in the form of a life-long annuity.
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. At retirement, the employee must receive a benefit that is equal to the
amount contributed to the plan plus the interest that has been credited to those
contributions. 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
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 the
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.
CRS-4
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 establish or continue a retirement plan than the
potential tax advantages it could gain by sponsoring 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 2005, for example, more than 36 million wage and salary
workers were employed by firms with fewer than 25 employees.3 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).4 The Small Business 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). Nevertheless, rates of retirement plan sponsorship and
participation in small firms continue to lag behind the rates achieved in larger firms.
The Number of Defined Benefit Plans Is Declining. According to the
Pension Benefit Guaranty Corporation (PBGC), the number of insured defined
benefit plans fell from 114,396 in 1985 to 30,336 in 2005.5 The decline in the
number of DB plans resulted mainly from the termination of a large number of small
plans. Between 1985 and 2005, the number of single-employer defined benefit
pension plans with fewer than 100 participants fell from 90,061 to 17,997, a decline
of 80%. The number of large DB plans fell from 22,147 to 10,772, a decline of
51.4%. In recent years, however, several large pension plans have been terminated,
and others have been “frozen” so that participants no longer accrue pension benefits.
3 Full-time and part-time wage and salary workers. (Source: Current Population Survey.)
4 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. 104-
188 authorized SIMPLE plans to replace SARSEPs. Firms may continue to establish SEPs
funded exclusively by employer contributions, but new SARSEPs were prohibited after
December 31, 1996. Previously existing SARSEPs may continue as before.
5 Pension Benefit Guaranty Corporation, Pension Insurance Data Book 2005.
CRS-5
Recent Trends in Retirement Plan Sponsorship
and Participation
The Current Population Survey. Every month, the Bureau of the Census
conducts the Current Population Survey (CPS) among a nationally representative
sample of approximately 100,000 households, primarily for the purpose of estimating
the rates of employment and unemployment. During March of each year, the survey
includes supplemental questions about employment, income, health insurance,
retirement plan participation, and receipt of government benefits during the previous
calendar year. This information allows analysts and researchers to calculate the
number and percentage of workers who reported whether their employer offered a
retirement plan and whether they participated in the plan. Responses can then be
categorized by 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 offered a retirement plan and if the worker participated — 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 2
compares retirement plan participation among year-round, full-time wage and salary
workers in the private sector with participation among workers 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 declined from 61.8% in 2004 to 59.7% in 2005. The
participation rate among these workers fell from 53.4% in 2004 to 51.6% in 2005.
Plan participation among full-time workers had increased from 54.6% in 1990 to
57.4% in 2000. It has since fallen by about six percentage points. Between 2004 and
2005, the proportion of part-time or part-year workers employed by firms that
sponsored a retirement plan fell from 41.5% to 39.9%. The participation rate among
part-year and part-time workers whose employer sponsored a retirement plan fell
from 24.8% in 2004 to 24.4% in 2005.
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 no difference in retirement plan
participation between men and women who work year-round, full-time. (See Table
4.) Women, however, are more likely than men to work part-year or part-time. In
2005, 82.6% of working men between the ages of 25 and 64 were employed year-
round, full-time compared to 67.2% of working women in this age-group.
Consequently, while women who worked full-time in 2005 were as likely as their
male counterparts to have participated in a retirement plan (52.0% of women vs.
51.4% of men), the retirement plan participation rate among all women 25 to 64
CRS-6
years old in the private sector in 2005 was lower than the participation rate among
all working men in that age group.6 (43% of women participated vs. 47% of men.)
Table 2. Participation in Retirement Plans
by Full-Time vs. Part-Time Employment
(Private-sector wage and salary workers, ages 25 to 64)
Workers
Employer Sponsors Plan
Employees Participating
(thousands)
Workers
Percent
Participant
Percent
Full-time
1990
53,026
33,323
62.8
28,955
54.6
1995
60,687
38,344
63.2
33,298
54.9
2000
70,177
46,499
66.3
40,304
57.4
2001
69,265
45,097
65.1
38,678
55.8
2002
69,093
42,805
62.0
36,973
53.5
2003
69,306
43,450
62.7
37,464
54.1
2004
70,402
43,488
61.8
37,588
53.4
2005
72,331
43,195
59.7
37,347
51.6
Part-time
1990
23,608
8,838
37.4
5,273
22.3
1995
23,790
9,348
39.3
5,508
23.2
2000
21,420
9,708
45.3
5,756
26.9
2001
23,449
10,535
44.9
6,444
27.5
2002
24,104
10,353
43.0
6,192
25.7
2003
23,714
9,868
41.6
5,991
25.3
2004
23,137
9,597
41.5
5,748
24.8
2005
23,394
9,337
39.9
5,707
24.4
All workers
1990
76,633
42,161
55.0
34,228
44.7
1995
84,477
47,692
56.5
38,806
45.9
2000
91,597
56,207
61.4
46,060
50.3
2001
92,714
55,632
60.0
45,122
48.7
2002
93,197
53,158
57.0
43,165
46.3
2003
93,020
53,318
57.3
43,455
46.7
2004
93,539
53,085
56.8
43,337
46.3
2005
95,725
52,532
54.9
43,053
45.0
Source: Congressional Research Service analysis of the Current Population Survey, various years.
6 CRS estimates based on the March 2005 CPS (not shown in accompanying tables).
CRS-7
Retirement Plans and Employer Size. Data from the CPS show that
retirement plan participation in small firms rose between 1990 and 2000, 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 3 show that from 1990 to 2005, the
number of workers between the ages of 25 and 64 who were employed in the private
sector and worked year-round, full-time at firms of all sizes increased from 53.0
million to 72.3 million. At the same time, the number of such workers whose
employer offered a retirement plan increased from 33.3 million to 43.2 million. The
proportion of year-round, full-time workers who were employed at firms that offered
a retirement plan rose from 62.8% in 1990 to 66.3% in 2000. It has since fallen to
59.7% .
The data displayed in Table 3 show that since 2000, the proportion of workers
in firms with 100 or more workers whose employer sponsors a retirement plan has
fallen from 80.5% to 75.5%. 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 2005, 29.0% of full-time workers in businesses
with fewer than 25 employees were employed at firms that sponsored a retirement
plan, down from 34.2% in 2000. This was still higher than the 25.4% of workers at
small firms whose employer sponsored a retirement plan in 1995. Among workers
in firms with 25 to 99 employees, 53.3% were employed at firms that sponsored a
retirement plan in 2005, compared to 58.5% in 2000 and 54.1% in 1995.
Table 3 also shows the percentage of year-round, full-time employees in the
private sector who participated in an employer-sponsored retirement plan.7 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 fell from 53.4% in 2004 to 51.6% in 2005. This was also lower
than the participation rates of 57.4% in 2000 and 54.9% in 1995. In firms with fewer
than 25 employees, just 25.3% of full-time employees between the ages of 25 and 64
participated in a retirement plan in 2005, down from 29.3% in 2000, but higher than
the 21.3% who participated in a plan in 1995. In firms with 25 to 99 employees,
retirement plan participation fell from 48.6% in 2004 to 45.2% in 2004. This was
lower than the participation rates of 49.4% in 2000 and 46.0% in 1995. Participation
in retirement plans among workers in firms with 100 or more employees also fell
between 2004 and 2005, declining from 67.0% to 65.4%. This was about five
percentage points lower than the participation rates of 70.2% in 2000 and 70.4% in
1995.
7 Not all employees whose employer sponsors a retirement plan are eligible to participate.
For example, employees under age 21, those who have been employed for less than one
year, and those who work fewer than 1,000 hours in a year can be excluded from the plan.
CRS-8
Table 3. 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
Workers
Employer Sponsors Plan
Employees Participating
firm
(thousands)
Workers
Percent
Participants
Percent
Under 25 employees
1990
12,119
3,042
25.1
2,619
21.6
1995
14,627
3,715
25.4
3,109 21.3
2000
16,591
5,575
34.2
4,857 29.3
2001
17,061
5,788
33.9
4,965 29.1
2002
17,878
5,658
31.7
4,880 27.3
2003
18,616
5,850
31.4
5,064 27.2
2004
18,906
5,795
30.7
5,016
26.5
2005
19,200
5,569
29.0
4,851
25.3
25 to 99 employees
1990
7,892
3,904
49.5
3,291
41.7
1995
9,108
4,923
54.1
4,188 46.0
2000
10,492
6,139
58.5
5,186 49.4
2001
10,466
6,086
58.2
5,067 48.4
2002
10,719
6,030
56.3
5,126 47.8
2003
10,540
6,133
58.2
5,254 49.9
2004
10,532
5,969
56.7
5,121
48.6
2005
11,214
5,975
53.3
5,070
45.2
100 or more employees
1990
33,014
26,378
79.9
23,045
69.8
1995
36,951
29,706
80.4
26,000
70.4
2000
43,094
34,692
80.5
30,262
70.2
2001
41,739
33,223
79.6
28,645
68.6
2002
40,496
31,116
76.8
26,967
66.6
2003
40,149
31,466
78.4
27,146
67.6
2004
40,964
31,724
77.4
27,452
67.0
2005
41,917
31,562
75.5
27,425
65.4
All firms
1990
53,026
33,323
62.8
28,955
54.6
1995
60,687
38,344
63.2
33,298
54.9
2000
70,177
46,499
66.3
40,304
57.4
2001
69,265
45,097
65.1
38,678
55.8
2002
69,093
42,805
62.0
36,973
53.5
2003
69,306
43,450
62.7
37,464
54.1
2004
70,402
43,488
61.8
37,588
53.4
2005
72,331
43,195
59.7
37,347
51.6
Source: CRS analysis of the Current Population Survey, various years.
CRS-9
Plan Participation Among Men and Women. Table 4 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 1990 and 2000, the proportion of men whose employer sponsored
a retirement plan rose from 63.3% to 66.2%. Since then, it has dropped to 58.6%.
The proportion of women who worked at firms that sponsored a retirement plan
increased from 62.1% in 1990 to 66.4% in 2000. In 2005, 61.3% of women who
worked year-round, full-time were employed at firms that sponsored a retirement
plan. Thus, in 2005 women who were employed year-round, full-time were more
likely than men to have worked for an employer that sponsored a retirement plan.
Men and women, however, were almost equally likely to have participated in an
employer-sponsored retirement plan. In 2005, 51.4% of men who were employed
year-round, full-time participated in a company-sponsored retirement plan, compared
to 52.0% of women. Both of these participation rates were lower than the 2000
participation rates of 58.3% for men and 56.1% for women. The participation rate
for men was 6.9 percentage points lower in 2005 than in 2000. The participation rate
for women was 4.1 percentage points lower in 2005 than in 2000.
Table 4. Employee Participation in Retirement Plans, by Sex
(Private-sector wage and salary workers, ages 25 to 64, employed year-round, full-time)
Workers
Employer Sponsors Plan
Employees Participating
(thousands)
Workers
Percent
Participants
Percent
Men
1990
32,208
20,389
63.3
18,242
56.6
1995
36,504
23,008
63.0
20,359 55.8
2000
41,516
27,463
66.2
24,220 58.3
2001
40,976
26,539
64.8
23,164 56.5
2002
40,851
25,100
61.4
22,033 53.9
2003
40,963
25,306
61.8
22,083 53.9
2004
41,732
25,190
60.4
22,079
52.9
2005
42,881
25,136
58.6
22,021
51.4
Women
1990
20,817
12,934
62.1
10,713
51.5
1995
24,182
15,336
63.4
12,939
53.5
2000
28,661
19,036
66.4
16,083
56.1
2001
28,290
18,558
65.6
15,513
54.8
2002
28,242
17,704
62.7
14,939
52.9
2003
28,342
18,144
64.0
15,381
54.3
2004
28,670
18,298
63.8
15,509
54.1
2005
29,450
18,059
61.3
15,326
52.0
Source: Congressional Research Service analysis of the Current Population Survey, various years.
CRS-10
Plan Participation by Employee Age. Table 5 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 — were less likely than middle-aged and older
workers to be employed at a firm that sponsored a retirement plan in 2005. They also
were less likely to participate in retirement plans than are older workers. In 2005,
53.8% of workers 25 to 34 years old worked for an employer that sponsored a
retirement plan, and 42.0% of workers in this age group participated in a company-
sponsored plan. Thus, 78.1% of those aged 25 to 34 who worked for a firm that
sponsored a plan participated in the plan (0.420/0.538 = 0.781). In contrast, among
workers 35 to 64 years old, 61.9% worked at firms that sponsored a retirement plan,
and 55.2% participated in a company-sponsored plan. Thus, among workers age 35
or older who worked for a firm that sponsored a retirement plan, 89.2% participated
in the plan (0.552/0.619 = 0.892)8
8 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. Employees who work fewer than 1,000 hours in a year and those under age 21
also can be excluded from participating, but neither group is represented in Table 5.
CRS-11
Table 5. Employee Participation in Retirement Plans, by Age
(Private-sector wage and salary workers, ages 25 to 64, employed year-round, full-time)
Employee
Workers
Employer Sponsors Plan
Employees Participating
Age
(thousands)
Workers
Percent
Participants
Percent
25 to 34
1990
19,344
11,489
59.4
9,135
47.2
1995
19,759
11,673
59.1
9,337
47.3
2000
20,398
12,803
62.8
10,173
49.9
2001
19,542
11,908
60.9
9,330
47.7
2002
19,389
11,090
57.2
8,638
44.6
2003
19,288
11,221
58.2
8,822
45.7
2004
19,122
10,878
56.9
8,584
44.9
2005
19,677
10,577
53.8
8,268
42.0
35 to 44
1990
16,989
11,042
65.0
9,871
58.1
1995
20,439
13,235
64.8
11,742
57.5
2000
23,362
15,479
66.3
13,559
58.0
2001
22,445
14,841
66.1
12,882
57.4
2002
21,826
13,681
62.7
11,879
54.4
2003
21,328
13,428
63.0
11,609
54.4
2004
21,587
13,314
61.7
11,564
53.6
2005
21,688
12,893
59.5
11,289
52.1
45 to 54
1990
10,922
7,148
65.5
6,586
60.3
1995
14,042
9,240
65.8
8,381
59.7
2000
18,489
12,951
70.1
11,787
63.8
2001
18,625
12,650
67.9
11,324
60.8
2002
18,796
12,308
65.5
11,204
59.6
2003
19,227
12,752
66.3
11,521
59.9
2004
19,763
12,827
64.9
11,531
58.4
2005
20,466
12,995
63.5
11,686
57.1
55 to 64
1990
5,771
3,644
63.1
3,363
58.3
1995
6,446
4,196
65.1
3,838
59.5
2000
7,929
5,267
66.4
4,785
60.3
2001
8,653
5,698
65.9
5,141
59.4
2002
9,082
5,725
63.0
5,252
57.8
2003
9,463
6,045
63.9
5,512
58.3
2004
9,930
6,470
65.2
5,910
59.5
2005
10,500
6,730
64.1
6,104
58.1
Source: CRS analysis of the Current Population Survey, various years.
CRS-12
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 6, race and ethnicity are categorized as white non-
Hispanic, black non-Hispanic, Hispanic, and other. The “other”category includes
mainly persons whose heritage is Asian, Native American, Eskimo, or Pacific
Islander. In 2005, 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 have worked for an employer that sponsored a retirement plan.
Among white non-Hispanic workers, 65.0% worked for an employer that sponsored
a retirement plan, and 57.3% participated in an employer-sponsored plan. Among
Hispanic workers, just 37.0% worked for an employer that sponsored a retirement
plan and only 29.0% participated in an employer-sponsored retirement plan. Of
workers who classified their race and ethnicity as black non-Hispanic, 57.2% worked
for an employer that sponsored a plan and 46.5% participated in a plan, while among
Asian-American and other workers, 56.6% worked for an employer that sponsored
a retirement plan and 48.8% participated in a plan.
Table 6. Employee Participation in Retirement Plans, by Race
(Private sector wage and salary workers, ages 25 to 64, employed year-round, full-time)
Employee
Workers
Employer Sponsors Plan
Employees Participating
Race
(thousands)
Workers
Percent
Participants
Percent
White, non-Hispanic
2002
49,012
32,711
66.7
28,836
58.8
2003
48,524
32,800
67.6
28,759
59.3
2004
48,618
32,427
66.7
28,522
58.7
2005
49,952
32,490
65.0
28,618
57.3
Black, non-Hispanic
2002
7,078
4,156
58.7
3,363
47.5
2003
7,241
4,311
59.5
3,555
49.1
2004
7,556
4,570
60.5
3,753
49.7
2005
7,511
4,295
57.2
3,491
46.5
Hispanic
2002
8,942
3,582
40.1
2,777
31.1
2003
9,073
3,750
41.3
2,956
32.6
2004
9,651
3,802
39.4
2,987
31.0
2005
10,208
3,775
37.0
2,964
29.0
Other
2002
4,062
2,356
58.0
1,996
49.2
2003
4,468
2,588
57.9
2,193
49.1
2004
4,578
2,689
58.7
2,326
50.8
2005
4,660
2,636
56.6
2,274
48.8
Source: Congressional Research Service analysis of the Current Population Survey, various years.
CRS-13
Plan Participation by Employee Earnings. Table 7 shows the
relationship between earnings and participation in an employer-sponsored retirement
plan. In Table 7, workers’ annual earnings from wages and salaries — as reported
on the Current Population Survey — are ranked by quartile. In 2005, 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 $60,000. Another quarter had
earnings between $38,000 and $60,000. The next quarter had earnings between
$25,000 and $38,000, and those in the lowest quartile earned less than $25,000.
In 2005, 74.4% 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 70.3% of workers in the top earnings quartile participated in a
retirement plan. Both of these percentages were lower than the rates in 2000 and
1995. In 2000, 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 75.5% of workers in the top earnings quartile participated in a
retirement plan. The equivalent sponsorship and participation rates in 1995 were
77.1% and 73.0%, respectively.
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 2005, 39.0% were employed at firms that sponsored a retirement
plan, and 27.5% of workers in the bottom quartile participated in a retirement plan.
Both of these percentages were lower than the comparable rates in 2000 and 1995.
In 2000, 44.9% 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 32.1% of workers in the bottom earnings quartile participated in a
retirement plan. The equivalent sponsorship and participation rates in 1995 were
42.4% and 30.4%, respectively.
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 2005 were in the top quartile, 74.4% worked
for an employer that sponsored a retirement plan and 70.3% participated in a
retirement plan. Therefore, the participation rate among employees in the top
earnings quartile whose employer sponsored a retirement plan was 94.5%
(0.703/0.744 = 0.945). Among workers whose 2005 earnings were in the bottom
quartile, only 39.0% worked for an employer that sponsored a retirement plan and
just 27.5% participated in a retirement plan. Thus, the participation rate among low-
wage employees whose employer sponsored a retirement plan was 70.5%
(0.275/0.390 = 0.705).
CRS-14
Table 7. Participation in Retirement Plans by Annual Earnings
(Private-sector wage and salary workers, ages 25 to 64, employed year-round, full-time)
Worker’s Annual
Employer Sponsors Plan
Employee Participates
Earnings
Percentage of Workers
Percentage of Workers
Highest Earnings Quartile
1990
77.9
73.7
1995
77.1
73.0
2000
80.2
75.5
2001
78.2
73.3
2002
75.3
71.0
2003
77.0
72.5
2004
75.8
71.4
2005
74.4
70.3
Second-highest Earnings Quartile
1990
72.0
64.2
1995
72.4
65.1
2000
74.3
67.1
2001
74.2
66.7
2002
70.9
63.3
2003
71.0
63.6
2004
71.3
64.1
2005
68.6
61.5
Third-highest Earnings Quartile
1990
61.3
51.4
1995
61.0
51.3
2000
66.0
55.5
2001
63.9
52.9
2002
61.3
51.6
2003
61.6
51.7
2004
60.9
51.0
2005
59.0
49.8
Lowest Earnings Quartile
1990
41.2
30.3
1995
42.4
30.4
2000
44.9
32.1
2001
44.9
31.5
2002
41.4
29.5
2003
41.2
28.4
2004
41.6
29.9
2005
39.0
27.5
Source: CRS analysis of the Current Population Survey, various years.
CRS-15
An Alternative Measure of Retirement Plan Participation
The National Compensation Survey. 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 (NCS). This survey is conducted among a nationally
representative sample of private-sector business establishments.9 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.10
According to the data collected from employers through the National
Compensation Survey, 51% of workers in the private sector participated in employer-
sponsored retirement plans in March 2006. (See Table 8.) Twenty percent of private-
sector workers participated in defined benefit plans and 43% participated in defined
contribution plans. Approximately 12% of private-sector workers participated in
both types of plan. The NCS indicates that 67% of employees in establishments with
100 or more workers participated in an employer-sponsored retirement plan in March
2006, while only 37% of employees at establishments with fewer than 100 employees
participated in an employer-sponsored retirement plan. The data from the NCS also
indicate that among full-time workers, 60% participated in an employer-sponsored
retirement plan in 2006, compared to just 21% of part-time workers.
While it is not necessarily surprising that the results of the NCS differ from
those of the CPS, nor that the NCS shows higher rates of participation, it is important
to note that in recent years the difference in the results shown by the two surveys has
increased because the NCS has indicated increasing rates of retirement plan
participation while the CPS data indicate that retirement plan participation has been
falling. As recently as 2003, the NCS indicated that 49% of private-sector workers
participated in a retirement plan while the CPS data showed a participation rate of
47%. This two percentage point difference was small enough to be inconsequential
for most analytical purposes. The slightly higher rate of participation indicated by
the NCS might partly be due to the fact that the business owners and benefits
specialists who are interviewed for the NCS could be expected to have greater
knowledge of employer-provided benefits than the household members interviewed
for the CPS. By March 2006, however, the NCS indicated that the proportion of
private-sector workers participating in employer-sponsored retirement plans had risen
to 51%, while the March 2006 CPS (which asks about pension participation in 2005)
showed that participation in retirement plans among private sector workers had fallen
to 45%. The difference in the results shown by the two surveys can no longer be
9 For more information on the National Compensation Survey, see U.S. Department of
Labor, National Compensation Survey: Employee Benefits in Private Industry in the United
States, March 2006, available online at [http://www.bls.gov/ncs/ebs/sp/ebsm0004.pdf].
10 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-16
considered inconsequential, leaving analysts to question whether one or both surveys
have problems related to sample selection or survey methodology.11
Table 8. Percentage of Private-sector Employees Participating
in Employer-Sponsored Retirement Plans
Type of Retirement Plan
All Types
Defined Benefit Defined Contribution
Establishment Size
1-99 workers
March 2003
35
8
31
March 2004
37
9
32
March 2005
37
9
32
March 2006
37
9
33
100 or more workers
March 2003
65
33
51
March 2004
67
34
53
March 2005
67
36
53
March 2006
67
33
54
Work Schedule
Full-time workers
March 2003
58
24
48
March 2004
60
24
50
March 2005
60
25
50
March 2006
60
23
51
Part-time workers
March 2003
18
8
14
March 2004
20
9
14
March 2005
19
9
14
March 2006
21
8
16
All workers
March 2003
49
20
40
March 2004
50
21
42
March 2005
50
21
42
March 2006
51
20
43
Note: Data represent 102 million workers employed in the private sector in
2003 and 105 million workers employed in the private sector in 2006.
Source: U.S. Department of Labor, National Compensation Survey.
11 It should be noted that another nationally representative survey of households, the Federal
Reserve Board’s Survey of Consumer Finances (SCF) shows results that are consistent with
the CPS. According to the SCF, retirement plan participation fell from 50% of workers in
2001 to 48% in 2004. See CRS Report RL30922, Retirement Savings and Household
Wealth: Trends from 2001 to 2004, by Patrick Purcell.
Document Outline