AARP: A Third of Boomers Not Covered by Retirement Plan

August 27, 2003 ( - A new study reveals that a third of Baby Boomers had no retirement plan in 1998 and could very well hit retirement age with comparatively sparse resources.

According to the AARP study, only two thirds of working baby boomers had access to retirement plans. Women, non-whites, and low-income groups were much less likely than their male, white, and higher-income counterparts to have a retirement plan. This despite strides women made between 1993 and 1998 in narrowing the coverage gap – largely because more people bought IRAs, the study said.

Being Covered at Any Time

Pension coverage for all workers age 16 and over was 50.9 % in 1998 when coverage was measured as having a pension at any time during a career – almost 9% higher than the rate typically measured, i.e., pension coverage on a worker’s current primary job (42.2 %).

As expected, workers in different age groups also had showed more having retirement plan access when you look at their odds of having a plan over the term of a full career versus a single point in time.  Boomer coverage was 9% higher using the career coverage definition; pre-boomer coverage was 13% higher; and retired worker coverage was 25% higher using the career-long measure.

IRA Extension

When the measure of coverage was further expanded to include participation in an IRA, coverage rates further increased for all workers and workers in different age groups, the study found. Pre-boomers had the highest level of retirement plan coverage (73.4 %) largely due to substantial pension availability at a previous job as well as a very high rate of IRA saving. Among boomers, as expected, older workers had a higher rate of retirement plan coverage from any source (71.5%) than their younger counterparts. Retired workers had the lowest rate of overall retirement plan coverage (61.4 %).

Women were less likely to have retirement plan coverage than their male counterparts, regardless of age group. However, the Census data suggest that the difference between men’s and women’s rates of pension coverage over a career is narrowing. Non-whites were less likely to have such coverage compared to their white counterparts, regardless of age.

The AARP noted that the low rate of IRA coverage among minorities compared with whites is a particular concern. Since most IRA assets are rollovers from previous pension plans, low minority IRA participation rates may reflect the fact that minorities are more likely to have DB than DC plans, i.e., plans with lower rollover potential, or less likely to have a DC plan in the first place.  In addition, minority individuals may value current income over saving for retirement more than whites do and therefore may be less likely to open an IRA regardless of its value for pension rollovers, study researchers said.

Understandably, retirement coverage also depends very much on how much the person earns. Those with annual incomes of $30,000 or more were much more likely to have retirement plan coverage than those with incomes less than that. Low-income workers were the most vulnerable to entering retirement without coverage.

Type of Coverage

The type of pension plan sponsored by an employer has implications for worker mobility, decisions about withdrawal from the labor force, and future retirement income, the study said. There has been a shift from DB to DC plans, especially to 401(k) plans. Census data on plan type in a current job indicates that boomers were more likely to have only-DC coverage than the older age groups. This was not the case for only-DB coverage or dual coverage where boomers and pre-boomers were equally likely to have such coverage.

In all age brackets, women were somewhat less likely than men to have only-DB plan or only-DC plan coverage. For both men and women, there was generally a higher rate of coverage in DB plans than in DC plans. Older minorities—i.e., boomers, pre-boomers, and retired workers—were more likely than their white counterparts to have only-DB plan coverage, but minorities in all age groups were less likely than their white counterparts to have only-DC coverage. Higher income workers were much more likely to have only-DB plan, only-DC plan, and dual coverage than their lower income counterparts.

A comparison of Census Data covering 1993 and 1998 revealed a significant increase, 5%, in the rate of coverage from any source. But there was a 3% decline in employer-sponsored pension coverage on a current job from 1993 to 1998. However, retirement plan coverage, including IRAs, for both men and women increased during this period. Minority retirement plan coverage decreased while white coverage increased.

Study Scope

Based on an analysis of US Census Bureau data, the study explored the retirement plan coverage among boomers (age 33 to 52 in 1998), pre-boomers (age 53 to 64 in 1998), and retired workers (aged 65+ in 1998) as well as among subgroups of this workforce – women, minorities, and low-income workers.

With this worrisome pension gap in place, AARP said potential fixes could include:

  • expansion of coverage to employees who work less than full time and have low incomes
  • the universal availability of pension payroll deductions for all workers
  • reducing the administrative costs for establishing plans, especially for small businesses
  • expanding automatic enrollment in 401(k) plans.

“The pension coverage and the retirement prospects of baby boomers are a growing concern,” AARP said in a statement. “Observers point to several pension trends that could threaten boomers’ retirement security. Among these are low and stagnant pension coverage rates and the contraction in the number of traditional defined benefit (DB) plans and their replacement by defined contribution (DC) plans—which are voluntary and shift the investment risk from employers to the employee. Time may be running out for boomers who still lack pensions to participate in a plan that will provide adequate benefits for retirement.”