Study Spotlights Participant Eligibility Misperceptions

October 14, 2005 ( - 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 eligible.

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 in 1998.
  • 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.