October 14, 2005 (PLANSPONSOR.com) - A new
Congressional Research Service (CRS) analysis of workplace
retirement plan data showed that many employees did not
participate because they believed they were not
According to the report, Retirement Plan Participation
and Contribution, 28% of respondents in 2003 said that they
had not worked for their current employer long enough to be
eligible, 29% said that they did not work enough hours to
be eligible and 9% said that their particular job was not
covered by the employer's plan. However, the study said
that nearly a quarter (24%) of workers who said they had
not worked for their employer long enough to be eligible
also noted that they had worked for that employer for more
than two years. Moreover, a third (35%) of those who said
they did not work enough hours to be eligible to
participate reported that they worked full-time - and 41%
said they always worked 35 hours or more per week. The
study's authors noted, "It appears from these responses
that some workers who believe they are ineligible to
participate in their employers' DC plan may in fact be
misinformed and could participate if they better understood
the rules governing plan eligibility."
As one might expect, finances also played a factor in
the participation decision. The report, which was based on
US Census data collected between February and May 2003
covering more than 29,000 American households, said
substantial numbers of eligible employees do not
participate because they believe that they cannot afford to
forego current income and contribute to the plan. In 2003,
19% of non-participating workers said that they could not
afford to dedicate money to that goal and 11% said that
they did not participate because they "didn't want to tie
up their money."
The variables with the strongest positive relationship
to the likelihood of participating in a plan are length of
service with an employer and monthly earnings. Among those
whose employer sponsored a plan, men, those over age 35,
married workers, college graduates, full-time workers, home
owners, those at small establishments, and those whose
employer contributed to the plan were more likely than
others to have participated in a defined contribution plan.
Neither the worker's race nor the presence of children in
the family had a statistically significant relationship to
employee participation, according to CRS.
The analysis also showed that:
between 1998 and 2003, the percentage of
private-sector workers whose employer sponsored a
retirement plan increased from 62% to 64.8%.
the percentage of private-sector workers who
participated in employer-sponsored retirement plans
increased from 43.1% in 1998 to 46.8% in 2003.
56.4% of workers in the private sector worked for
an employer that sponsored a defined contribution plan
in 2003, an increase of 4.1% over the sponsorship rate
41% of private-sector workers participated in
401(k)-type plans in 2003, an increase of 5.6% over the
participation rate in 1998.
among workers whose employers offered a DC plan in
2003, 72.6% participated in the plan, an increase of
4.9% over 1998.
The CRS study said that in 2003, the median employee
monthly salary deferral into 401(k)-type plans was $158, or
$1,896 on an annual basis. Eighty-five percent of employees
deferred less than $500 per month into these plans in 2003.
Only 3% of participants contributed $1,000 per month to
defined contribution plans, equivalent to the annual
pre-tax deferral limit of $12,000 in effect during 2003.
Among all private-sector workers who participated in
defined contribution plans in 2003, the mean total account
balance was $34,757 and the median balance was $15,000.
In 1998, 42% of participants directed most of their
contributions to stock funds and stock and bond funds. Five
years later, a roughly identical proportion (44%) did so.
Corporate and government bonds and bond funds received the
largest share of contributions from 8% of participants in
1998 and 10% of participants in 2003.