Worker Participation in Employer-Sponsored Pensions: A Fact Sheet

Employers in the United States offering a pension may offer their workers a defined benefit (DB) pension, a defined contribution (DC) pension (such as 401(k) plans), or both. This fact sheet summarizes Bureau of Labor Statistics (BLS) data from March 2017 on access to and participation rates in retirement plans among U.S. workers classified by various attributes. About 70% of all U.S. workers have access to an employer-sponsored pension, and about 54% of U.S. workers participate in an employer-sponsored pension. Access and participation rates vary with various worker attributes. These attributes include whether the workers are full-time or part-time, whether they work in the private or public sector, and whether or not they belong to a union. The data also classify access and participation rates by the average wages of workers’ occupations and the number of employees at workers’ place of employment. Keywords: pensions pension plan retirement 401(k) defined contribution defined benefit

Worker Participation in Employer-Sponsored Pensions: A Fact Sheet

Updated September 10, 2018 (R43439)

This fact sheet provides data on the percentage of U.S. workers who have access to and who participate in employer-sponsored pension plans. The data are from the National Compensation Survey (NCS), conducted by the Bureau of Labor Statistics (BLS).1

Worker Participation in Employer-Sponsored Pensions

A pension is a voluntary benefit offered by some employers in which employees and employers defer a portion of current wages to receive as income in retirement. Pension plans that meet the requirements specified in the Internal Revenue Code are called qualified plans and receive specified tax advantages.2 Employers may offer two types of pension plans: defined benefit (DB) plans or defined contribution (DC) plans. (Some employers offer both.) Since the late 1980s and early 1990s, DC pension plans have been more common than DB pension plans.3

In DB pension plans, participants receive monthly payments in retirement that are based on a formula that typically uses either (1) a combination of length of service, accrual rate, and average of final years' salary or (2) a flat dollar amount times the number or months or years in the plan. For example, a plan might specify that retirees receive an amount equal to 1.5% of their pay for each year of service, where the pay is the average of a worker's salary during his or her highest-paid five years.4

In DC plans—of which 401(k) plans, 403(b) plans, 457(b) plans, and the Thrift Savings Plan (TSP) are the most common—workers contribute a percentage of their wages to an individual account established by the employer. Employers may also contribute a match to the DC plan, which is an additional contribution equal to some or all of the worker's contribution. The account accrues investment returns and is then used as a basis for income in retirement.5

Table 1 contains both access and participation rates separately for workers in DB and DC plans (and for either plan). BLS indicates that employees are considered to have access to a benefit plan if it is available for their use and are considered participants if they have fulfilled any applicable service requirements and, where applicable, paid required contributions.

Not all workers who have access to a pension plan at work participate in the plan. In addition, the percentage of workers who participate in plans to which they have access differs between DB and DC plans. The take-up rate is defined as the percentage of workers who participate in a plan to which they have access. Because most DB plans are funded entirely from employer contributions, among workers that have access to a DB plan, the take-up rate is 83%.6 Among workers that have access to a DC plan, the take-up rate is 69%. Among the reasons for the lower take-up rates for DC plans compared with DB plans are as follows: (1) until recently, workers had to make an active decision to participate in DC plans, which meant that workers might delay (and eventually forget about) the decision to participate,7 and (2) because DC plans are at least partially funded by employee contributions, some workers might prefer to receive the money as current wages rather than delay the income until they retire.8

The data in Table 1 are classified by a variety of attributes that highlight differences in pension plan participation rates among groups of workers. Key distinctions in the data include the following:

  • A greater percentage of full-time workers have access to pension plans compared with part-time workers. Among part-time civilian workers, 38% had access to a pension plan; among full-time civilian workers, 81% had access to a pension plan.9
  • A greater percentage of state and local public-sector workers (91%) have access to pension plans compared with private-sector workers (66%). State and local public-sector workers are more likely to have access to DB pension plans (86% compared with 18%), whereas private-sector workers are more likely to have access to DC pension plans (62% compared with 37%).10 In 2016, about 26% of state and local government workers did not participate in Social Security.11
  • Access rates are higher for workers in higher paying occupations. For example, 42% of private-sector workers in occupations with the lowest 25% of average wages participate in employer-sponsored pensions, whereas 88% of workers in occupations in the highest 25% of average wages do.
  • Access rates increase as the size of workers' firms increases. For example, 49% of private-sector workers in firms with fewer than 50 employees participate in employer-sponsored pensions, whereas 89% of workers in firms with 500 or more employees do.

Table 1. Access and Participation Rates in Employer-Sponsored Pension Plans, March 2017

 

 

Either Defined Benefit or Defined Contribution

Defined Benefit

Defined Contribution

 

 

Access

Participation

Access

Participation

Access

Participation

Civilian Workersa

All workers

70%

54%

28%

23%

59%

40%

 

Full-time

81%

65%

33%

28%

68%

48%

 

Part-time

38%

22%

11%

8%

32%

16%

Private-Sectorb Workers

All workers

66%

50%

18%

15%

62%

44%

 

Full-time

77%

60%

22%

18%

73%

54%

 

Part-time

38%

21%

8%

5%

33%

17%

 

Union

92%

82%

71%

66%

55%

44%

 

Nonunion

64%

47%

13%

9%

63%

45%

 

Average Wage of Occupation

 

Lowest 25%

42%

21%

6%

3%

39%

19%

 

Second 25%

66%

46%

13%

10%

62%

41%

 

Third 25%

78%

64%

23%

19%

73%

56%

 

Highest 25%

88%

77%

35%

29%

82%

70%

 

Number of Employees at Place of Employment

 

1 to 49

49%

34%

7%

6%

47%

32%

 

50 to 99

65%

46%

14%

11%

60%

41%

 

100 to 499

79%

58%

20%

16%

72%

51%

 

500 or more

89%

76%

43%

36%

83%

66%

State and Localc Government Workers

All workers

91%

80%

86%

74%

37%

16%

 

Full-time

99%

87%

94%

81%

40%

18%

 

Part-time

46%

39%

40%

35%

16%

7%

 

State government

96%

83%

91%

76%

49%

21%

 

Local government

90%

79%

84%

74%

33%

15%

Source: March 2017 National Compensation Survey (NCS). Data on civilian workers are available at http://www.bls.gov/ncs/ebs/benefits/2017/ownership/civilian/table02a.htm; private-sector workers at http://www.bls.gov/ncs/ebs/benefits/2017/ownership/private/table02a.htm; and state and local government workers at http://www.bls.gov/ncs/ebs/benefits/2017/ownership/govt/table02a.htm.

Notes: Definitions are from the NCS's Glossary of Employee Benefit Terms, available at http://www.bls.gov/ncs/ebs/glossary20152016.htm, and BLS Information Glossary, at http://www.bls.gov/bls/glossary.htm#C.

a. Defined by BLS as all private-industry and state and local government workers, excluding federal government, military, and agricultural workers.

b. Referred to in the NCS as private-industry workers, excluding agricultural workers and private households.

c. Referred to in the NCS as public-sector workers, excluding federal workers.

Author Contact Information

[author name scrubbed], Analyst in Income Security ([email address scrubbed], [phone number scrubbed])

Acknowledgments

Emma Sifre provided assistance in updating this report.

Footnotes

1.

The National Compensation Survey (NCS) provides data on employer costs for employee compensation and the availability of employee benefits among U.S. workers. NCS's website is http://www.bls.gov/ncs/home.htm.

2.

For example, a pension plan is qualified if it meets Internal Revenue Code (IRC) requirements with respect to plan participation, vesting of benefits, and distribution of benefits. See 26 U.S.C. §401(a). Qualified plans are eligible for favorable tax treatment, such as deferred taxes on contributions and earnings.

3.

For more information, see Sebastian Devlin-Foltz, Alice M. Henriques, and John Sabelhaus, The Evolution of Retirement Wealth, Board of Governors of the Federal Reserve System, 2015, https://www.federalreserve.gov/econresdata/feds/2015/files/2015009pap.pdf.

4.

A worker with 20 years of service covered by a defined benefit (DB) plan that has an accrual rate of 1.5% with highest five years of salary of $50,000 would receive a monthly pension benefit of $1,250 ($50,000 / 12 x 20 x .015 = $1,250). As an example of a flat-rate benefit, a plan might offer benefit of $50 per month of service in the plan, so an individual with 20 years (240 months) would receive an annual benefit of $50 x 240 = $12,000.

5.

Except for the Thrift Savings Plan (TSP), which is sponsored by the federal government, the plans are named for the section of the IRC that authorizes them. Private-sector employers sponsor 401(k) plans, public school systems and nonprofit organizations sponsor 403(b) plans, and state and local governments sponsor 457(b) plans. For more information, see http://www.irs.gov/Retirement-Plans/Plan-Sponsor/Types-of-Retirement-Plans-1 or CRS Report R40707, 401(k) Plans and Retirement Savings: Issues for Congress.

6.

The access rate for civilian workers in DB plans is 28% and the participation rate is 23%, which means that 83% (or 23% / 28%) of workers participate in a DB plan to which they have access. (Participation rate differences with the BLS data are due to rounding. U.S. Department of Labor (DOL) data for 2011 (the most recent year for which data are available) indicated that among private-sector workers who participated in DB plans, 4% were required to make an employee contribution to the plans. Among public-sector workers who participated in DB plans, 79% were required to make an employee contribution to their DB pension plans. See U.S. Department of Labor and U.S. Bureau of Labor Statistics, National Compensation Survey: Employee Benefits in the United States, March 2011 (Bulletin 2771), September 2011, at http://www.bls.gov/ncs/ebs/benefits/2011/ebbl0048.pdf.

7.

An increasing number of defined contribution (DC) plans have automatic enrollment, in which new participants are deemed to participate in accessible DC plans unless they opt out. Evidence suggests that about 10% of employees opt out of automatic enrollment DC plans. See, e.g., WorldatWork [sic] and the American Benefits Institute, Trends in 401(k) Plans and Retirement Rewards, March 2013, https://www.americanbenefitscouncil.org/pub/?id=e613e2a9-cb3b-b159-6cff-6931bd1953a6, and Jeffrey W. Clark, Stephen P. Utkus, and Jean A. Young, Automatic Enrollment: The Power of Default, Vanguard Research, January 2015, https://pressroom.vanguard.com/nonindexed/Automatic_enrollment_power_of_default_1.15.2015.pdf.

8.

Workers who do not participate in DC plans for which they are eligible lose (1) the tax benefits from saving in a 401(k) plan and (2) any potential employer match to the employee's contributions. See, e.g., James J. Choi, David Laibson, and Brigitte C. Madrian, "$100 Bills on the Sidewalk: Violations of No-Arbitrage in 401(k) Accounts," The Review of Economics and Statistics, vol. 93, no. 3 (August 2011), pp. 748-763.

9.

Civilian workers are defined by the Bureau of Labor Statistics (BLS) as all private industry and state and local government workers. Federal government, military, and agricultural workers are excluded. See http://www.bls.gov/bls/glossary.htm#C.

10.

The NCS refers to public-sector workers as state and local government workers. Nearly all federal civilian employees are covered by the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). For more information, see CRS Report 98-810, Federal Employees' Retirement System: Benefits and Financing.

11.

See U.S. Bureau of Labor Statistics, National Compensation Survey: Retirement Plan Provisions in State and Local Government in the United States, 2016, April 2017, Table 5, https://www.bls.gov/ncs/ebs/detailedprovisions/2016/ownership/govt/ebbl0060.pdf.