Order Code RL30122 Pension Sponsorship and Participation: Summary of Recent Trends Updated September 6, 2007 Patrick Purcell Specialist in Income Security Domestic Social Policy Division 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 52.5 million in 2005 to 51.2 million in 2006. The number of private-sector workers who participated in employer-sponsored retirement plans fell from 43.1 million in 2005 to 42.0 million in 2006. The proportion of 25 to 64 year-old workers in the private sector who participated in employer-sponsored retirement plans declined from 45.0% in 2005 to 43.2% in 2006. Between 2000 and 2006, the number of private-sector workers between the ages of 25 and 64 who participated in employer-sponsored retirement plans fell from 46 million to 42 million, and the percentage who participated fell from 50.3% to 43.2% A CRS analysis of the Current Population Survey indicates that, among privatesector workers aged 25 to 64 who were employed year-round, full-time: ! ! ! ! ! ! ! ! The percentage of workers whose employer sponsored a retirement plan fell from 59.7% in 2005 to 57.2% in 2006. The percentage of workers who participated in employer-sponsored retirement plans fell from 51.6% in 2005 to 49.2% in 2006. Only 22.9% of workers at firms with fewer than 25 employees participated in an employer-sponsored retirement plan in 2006, compared to 42.6% of workers at firms with 25 to 99 employees and 62.7% of workers at firms with 100 or more employees. Among men and women who were employed year-round, full-time, 48.9% of men and 49.7% of women participated in an employersponsored retirement plan in 2006. Only 41.1% of private-sector workers aged 25 to 34 and employed year-round, full-time participated in an employer-sponsored retirement plan in 2006, compared to 49.3% of workers aged 35 to 44, 54.5% of those aged 45 to 54, and 53.8% of those aged 55 to 64. Black, Hispanic, and other non-white workers were less likely to have participated in an employer-sponsored retirement plan. Fiftyfive percent of white workers participated in a company-sponsored retirement plan in 2006, compared to 43.8% of black non-Hispanic workers, 27.6% of Hispanic workers, and 47.1% of other non-white workers (mainly Asian-American and Native American workers). Only 26.2% of workers whose earnings were in the lowest quartile in 2006 (under $25,000) participated in a retirement plan at work, compared to 66.7% of workers whose earnings were in the top quartile (above $60,000). The percentage of part-year or part-time workers in the private sector whose employer sponsored a retirement plan was 37.8% in 2006, down from 39.9% in 2005. The percentage of part-year or part-time workers in the private sector who participated in an employer sponsored retirement plan fell from 24.4% in 2005 to 23.3% in 2006. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Who Bears the Investment Risk? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Number of Defined Benefit Plans Is Declining . . . . . . . . . . . . . . . . . . . 4 Recent Trends in Retirement Plan Sponsorship and Participation . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Another Measure of Retirement Plan Participation: The National Compensation Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 List of Tables Table 1. Labor Force Participation Rates in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . 13 Table 7. Participation in Retirement Plans by Annual Earnings . . . . . . . . . . . . . 15 Table 8. Percentage of Private-Sector Employees Participating in Employer-Sponsored Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 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 13.0 years, while a woman who turned 65 in 1960 had a remaining life expectancy of 15.8 years. A man who reached age 65 in 2005 could expect to live another 16.8 years, while a woman who turned 65 in 2005 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 1 U.S. National Center for Health Statistics, Vital Statistics of the United States. CRS-2 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 2006 Age Total Number of People (thousands) Number in the Labor Force (thousands) Labor Force Participation Rate (percent) Men Age 25 to 54 61,640 55,840 90.6 20,991 18,489 88.1 Age 55 to 64 15,095 10,509 69.6 Age 65 and up 15,219 3,096 20.3 63,243 47,726 75.5 21,910 16,656 76.0 Age 55 to 64 16,280 9,475 58.2 Age 65 and up 20,394 2,388 11.7 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 2007). 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. 2 Defined benefit pensions are taxed when the employee receives benefits during retirement. CRS-3 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 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 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 CRS-4 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 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 2006, for example, more than 37 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 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. 104188 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 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. Recent Trends in Retirement Plan Sponsorship and Participation 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 was included in the plan — 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 59.7% in 2005 to 57.2% in 2006. The participation rate among these workers fell from 51.6% in 2005 to 49.2% in 2006. Plan participation among full-time workers increased from 54.6% in 1990 to 57.4% in 2000. It has since fallen by about eight percentage points. Between 2005 and 2006, the proportion of part-time or part-year workers employed by firms that sponsored a retirement plan fell from 39.9% to 37.8%. The participation rate among part-year and part-time workers whose employer sponsored a retirement plan fell from 24.4% in 2005 to 23.3% in 2006. 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 4.) Women, however, are more likely than men to work part-year or part-time. In 2006, 83.6% of working men between the ages of 25 and 64 were employed year- CRS-6 round, full-time compared to 68.5% of working women in this age-group. Consequently, while women who worked full-time in 2006 were as likely as their male counterparts to have participated in a retirement plan (49.7% of women vs. 48.9% of men), the retirement plan participation rate among all women 25 to 64 years old in the private sector in 2006 was lower than the participation rate among all working men in that age group.6 (41% of women participated vs. 45% 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 (thousands) Full-time 1990 1995 2000 2001 2002 2003 2004 2005 2006 Part-time 1990 1995 2000 2001 2002 2003 2004 2005 2006 All workers 1990 1995 2000 2001 2002 2003 2004 2005 2006 Employer Sponsors Plan Employees Participating Workers Percent Participant Percent 53,026 60,687 70,177 69,265 69,093 69,306 70,402 72,331 74,542 33,323 38,344 46,499 45,097 42,805 43,450 43,488 43,195 42,601 62.8 63.2 66.3 65.1 62.0 62.7 61.8 59.7 57.2 28,955 33,298 40,304 38,678 36,973 37,464 37,588 37,347 36,676 54.6 54.9 57.4 55.8 53.5 54.1 53.4 51.6 49.2 23,608 23,790 21,420 23,449 24,104 23,714 23,137 23,394 22,660 8,838 9,348 9,708 10,535 10,353 9,868 9,597 9,337 8,566 37.4 39.3 45.3 44.9 43.0 41.6 41.5 39.9 37.8 5,273 5,508 5,756 6,444 6,192 5,991 5,748 5,707 5,287 22.3 23.2 26.9 27.5 25.7 25.3 24.8 24.4 23.3 76,633 84,477 91,597 92,714 93,197 93,020 93,539 95,725 97,201 42,161 47,692 56,207 55,632 53,158 53,318 53,085 52,532 51,167 55.0 56.5 61.4 60.0 57.0 57.3 56.8 54.9 52.6 34,228 38,806 46,060 45,122 43,165 43,455 43,337 43,053 41,963 44.7 45.9 50.3 48.7 46.3 46.7 46.3 45.0 43.2 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 2006, 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 74.5 million. At the same time, the number of such workers whose employer offered a retirement plan increased from 33.3 million to 42.6 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 57.2%. 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 72.4%. 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 2006, 26.6% 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, 50.7% were employed at firms that sponsored a retirement plan in 2006, 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 51.6% in 2005 to 49.2% in 2006. 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 22.9% of full-time employees between the ages of 25 and 64 participated in a retirement plan in 2006, 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 45.2% in 2005 to 42.6% in 2006. 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 2005 and 2006, declining from 65.4% to 62.7%. This was almost eight 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 firm Workers (thousands) Under 25 employees 1990 12,119 1995 14,627 2000 16,591 2001 17,061 2002 17,878 2003 18,616 2004 18,906 2005 19,200 2006 19,406 25 to 99 employees 1990 7,892 1995 9,108 2000 10,492 2001 10,466 2002 10,719 2003 10,540 2004 10,532 2005 11,214 2006 11,489 100 or more employees 1990 33,014 1995 36,951 2000 43,094 2001 41,739 2002 40,496 2003 40,149 2004 40,964 2005 41,917 2006 43,646 All firms 1990 53,026 1995 60,687 2000 70,177 2001 69,265 2002 69,093 2003 69,306 2004 70,402 2005 72,331 2006 74,542 Employer Sponsors Plan Workers Percent Employees Participating Participants Percent 3,042 3,715 5,575 5,788 5,658 5,850 5,795 5,569 5,160 25.1 25.4 34.2 33.9 31.7 31.4 30.7 29.0 26.6 2,619 3,109 4,857 4,965 4,880 5,064 5,016 4,851 4,434 21.6 21.3 29.3 29.1 27.3 27.2 26.5 25.3 22.9 3,904 4,923 6,139 6,086 6,030 6,133 5,969 5,975 5,829 49.5 54.1 58.5 58.2 56.3 58.2 56.7 53.3 50.7 3,291 4,188 5,186 5,067 5,126 5,254 5,121 5,070 4,889 41.7 46.0 49.4 48.4 47.8 49.9 48.6 45.2 42.6 26,378 29,706 34,692 33,223 31,116 31,466 31,724 31,562 31,612 79.9 80.4 80.5 79.6 76.8 78.4 77.4 75.5 72.4 23,045 26,000 30,262 28,645 26,967 27,146 27,452 27,425 27,353 69.8 70.4 70.2 68.6 66.6 67.6 67.0 65.4 62.7 33,323 38,344 46,499 45,097 42,805 43,450 43,488 43,195 42,601 62.8 63.2 66.3 65.1 62.0 62.7 61.8 59.7 57.2 28,955 33,298 40,304 38,678 36,973 37,464 37,588 37,347 36,676 54.6 54.9 57.4 55.8 53.5 54.1 53.4 51.6 49.2 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 56.3%. 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 2006, 58.4% of women who worked year-round, full-time were employed at firms that sponsored a retirement plan. Thus, in 2006 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 2006, 48.9% of men who were employed year-round, full-time participated in a company-sponsored retirement plan, compared to 49.7% 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 9.4 percentage points lower in 2006 than in 2000. The participation rate for women was 6.4 percentage points lower in 2006 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 (thousands) Men 1990 1995 2000 2001 2002 2003 2004 2005 2006 Women 1990 1995 2000 2001 2002 2003 2004 2005 2006 Employer Sponsors Plan Employees Participating Workers Percent Participants Percent 32,208 36,504 41,516 40,976 40,851 40,963 41,732 42,881 44,210 20,389 23,008 27,463 26,539 25,100 25,306 25,190 25,136 24,898 63.3 63.0 66.2 64.8 61.4 61.8 60.4 58.6 56.3 18,242 20,359 24,220 23,164 22,033 22,083 22,079 22,021 21,616 56.6 55.8 58.3 56.5 53.9 53.9 52.9 51.4 48.9 20,817 24,182 28,661 28,290 28,242 28,342 28,670 29,450 30,332 12,934 15,336 19,036 18,558 17,704 18,144 18,298 18,059 17,703 62.1 63.4 66.4 65.6 62.7 64.0 63.8 61.3 58.4 10,713 12,939 16,083 15,513 14,939 15,381 15,509 15,326 15,060 51.5 53.5 56.1 54.8 52.9 54.3 54.1 52.0 49.7 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, fulltime, 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 2006. They also were less likely to participate in retirement plans than are older workers. In 2006, 52.3% of workers 25 to 34 years old worked for an employer that sponsored a retirement plan, and 41.1% of workers in this age group participated in a company-sponsored plan. Thus, 78.6% of those aged 25 to 34 who worked for a firm that sponsored a plan participated in the plan (0.411/0.523 = 0.786). In contrast, among workers 55 to 64 years old, 60.1% worked at firms that sponsored a retirement plan, and 53.8% participated in a company-sponsored plan. Thus, among workers aged 55 to 64 who worked for a firm that sponsored a retirement plan, 89.5% participated in the plan (0.538/0.601 = 0.895).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 Age 25 to 34 1990 1995 2000 2001 2002 2003 2004 2005 2006 35 to 44 1990 1995 2000 2001 2002 2003 2004 2005 2006 45 to 54 1990 1995 2000 2001 2002 2003 2004 2005 2006 55 to 64 1990 1995 2000 2001 2002 2003 2004 2005 2006 Workers (thousands) Employer Sponsors Plan Workers Percent Employees Participating Participants Percent 19,344 19,759 20,398 19,542 19,389 19,288 19,122 19,677 20,359 11,489 11,673 12,803 11,908 11,090 11,221 10,878 10,577 10,648 59.4 59.1 62.8 60.9 57.2 58.2 56.9 53.8 52.3 9,135 9,337 10,173 9,330 8,638 8,822 8,584 8,268 8,371 47.2 47.3 49.9 47.7 44.6 45.7 44.9 42.0 41.1 16,989 20,439 23,362 22,445 21,826 21,328 21,587 21,688 21,875 11,042 13,235 15,479 14,841 13,681 13,428 13,314 12,893 12,313 65.0 64.8 66.3 66.1 62.7 63.0 61.7 59.5 56.3 9,871 11,742 13,559 12,882 11,879 11,609 11,564 11,289 10,781 58.1 57.5 58.0 57.4 54.4 54.4 53.6 52.1 49.3 10,922 14,042 18,489 18,625 18,796 19,227 19,763 20,466 21,188 7,148 9,240 12,951 12,650 12,308 12,752 12,827 12,995 12,959 65.5 65.8 70.1 67.9 65.5 66.3 64.9 63.5 61.2 6,586 8,381 11,787 11,324 11,204 11,521 11,531 11,686 11,542 60.3 59.7 63.8 60.8 59.6 59.9 58.4 57.1 54.5 5,771 6,446 7,929 8,653 9,082 9,463 9,930 10,500 11,120 3,644 4,196 5,267 5,698 5,725 6,045 6,470 6,730 6,681 63.1 65.1 66.4 65.9 63.0 63.9 65.2 64.1 60.1 3,363 3,838 4,785 5,141 5,252 5,512 5,910 6,104 5,981 58.3 59.5 60.3 59.4 57.8 58.3 59.5 58.1 53.8 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 2006, 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, 62.7% worked for an employer that sponsored a retirement plan, and 55.0% participated in an employer-sponsored plan. Among Hispanic workers, just 35.0% worked for an employer that sponsored a retirement plan and only 27.6% participated in an employer-sponsored retirement plan. Of workers who classified their race and ethnicity as black non-Hispanic, 53.3% worked for an employer that sponsored a plan and 43.8% participated in a plan, while among AsianAmerican and other workers, 55.9% worked for an employer that sponsored a retirement plan and 47.1% participated in a plan. CRS-13 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 Race Workers (thousands) White, non-Hispanic 2002 49,012 2003 48,524 2004 48,618 2005 49,952 2006 50,627 Black, non-Hispanic 2002 7,078 2003 7,241 2004 7,556 2005 7,511 2006 7,927 Hispanic 2002 8,942 2003 9,073 2004 9,651 2005 10,208 2006 10,982 Other 2002 4,062 2003 4,468 2004 4,578 2005 4,660 2006 5,007 Employer Sponsors Plan Workers Percent Employees Participating Participants Percent 32,711 32,800 32,427 32,490 31,740 66.7 67.6 66.7 65.0 62.7 28,836 28,759 28,522 28,618 27,817 58.8 59.3 58.7 57.3 55.0 4,156 4,311 4,570 4,295 4,224 58.7 59.5 60.5 57.2 53.3 3,363 3,555 3,753 3,491 3,468 47.5 49.1 49.7 46.5 43.8 3,582 3,750 3,802 3,775 3,843 40.1 41.3 39.4 37.0 35.0 2,777 2,956 2,987 2,964 3,032 31.1 32.6 31.0 29.0 27.6 2,356 2,588 2,689 2,636 2,794 58.0 57.9 58.7 56.6 55.9 1,996 2,193 2,326 2,274 2,358 49.2 49.1 50.8 48.8 47.1 Source: Congressional Research Service analysis of the Current Population Survey, various years. CRS-14 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 2006, 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 $40,000 and $60,000. The next quarter had earnings between $25,000 and $40,000, and those in the lowest quartile earned less than $25,000. In 2006, 70.9% 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 66.7% 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 2006, 36.6% were employed at firms that sponsored a retirement plan, and 26.2% 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 2006 were in the top quartile, 70.9% worked for an employer that sponsored a retirement plan and 66.7% participated in a retirement plan. Therefore, the participation rate among employees in the top earnings quartile whose employer sponsored a retirement plan was 94.1% (0.667/0.709 = 0.941). Among workers whose 2006 earnings were in the bottom quartile, only 36.6% worked for an employer that sponsored a retirement plan and just 26.2% participated in a retirement plan. Thus, the participation rate among low-wage employees whose employer sponsored a retirement plan was 71.6% (0.262/0.366 = 0.716). CRS-15 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 Earnings Employer Sponsors Plan Percentage of Workers Highest Earnings Quartile 1990 1995 2000 2001 2002 2003 2004 2005 2006 Second-highest Earnings Quartile 1990 1995 2000 2001 2002 2003 2004 2005 2006 Third-highest Earnings Quartile 1990 1995 2000 2001 2002 2003 2004 2005 2006 Lowest Earnings Quartile 1990 1995 2000 2001 2002 2003 2004 2005 2006 Employee Participates Percentage of Workers 77.9 77.1 80.2 78.2 75.3 77.0 75.8 74.4 70.9 73.7 73.0 75.5 73.3 71.0 72.5 71.4 70.3 66.7 72.0 72.4 74.3 74.2 70.9 71.0 71.3 68.6 66.8 64.2 65.1 67.1 66.7 63.3 63.6 64.1 61.5 59.9 61.3 61.0 66.0 63.9 61.3 61.6 60.9 59.0 56.2 51.4 51.3 55.5 52.9 51.6 51.7 51.0 49.8 46.3 41.2 42.4 44.9 44.9 41.4 41.2 41.6 39.0 36.6 30.3 30.4 32.1 31.5 29.5 28.4 29.9 27.5 26.2 Source: CRS analysis of the Current Population Survey, various years. CRS-16 Another 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 employersponsored retirement plans in March 2007. (See Table 8.) Twenty percent of privatesector 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 66% of employees in establishments with 100 or more workers participated in an employer-sponsored retirement plan in March 2007, 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 March 2007, compared to just 23% 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 a generally steady rate of retirement plan participation whereas 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 whereas 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 2007, however, the NCS indicated that the proportion of private-sector workers participating in employer-sponsored retirement plans was 51%, whereas the March 2007 CPS (which asks about pension participation in 2006) showed that participation in retirement plans among private sector workers had fallen to 43%. The difference in the results shown by the two surveys can no longer be considered inconsequential, leaving 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-17 analysts to question whether one or both surveys have problems related to sample selection or survey methodology. Table 8. Percentage of Private-Sector Employees Participating in Employer-Sponsored Retirement Plans Type of Retirement Plan All Types Establishment Size 1-99 workers March 2003 March 2004 March 2005 March 2006 March 2007 100 or more workers March 2003 March 2004 March 2005 March 2006 March 2007 Work Schedule Full-time workers March 2003 March 2004 March 2005 March 2006 March 2007 Part-time workers March 2003 March 2004 March 2005 March 2006 March 2007 All workers March 2003 March 2004 March 2005 March 2006 March 2007 Defined Benefit Defined Contribution 35 37 37 37 37 8 9 9 9 9 31 32 32 33 33 65 67 67 67 66 33 34 36 33 32 51 53 53 54 53 58 60 60 60 60 24 24 25 23 23 48 50 50 51 50 18 20 19 21 23 8 9 9 8 9 14 14 14 16 18 49 50 50 51 51 20 21 21 20 20 40 42 42 43 43 Source: U.S. Department of Labor, National Compensation Survey. Note: Data represent 102 million workers employed in the private sector in 2003 and 108 million workers employed in the private sector in 2007