This week the Schwartz Center for Economic Policy Analysis (SCEPA) published a short article claiming that “New Data Shows Drop in Retirement Coverage for All Income Levels,” contributing to the narrative that Americans face a “retirement crisis” that government must step in to address.
In reality, the article should have been titled “Bad Data Show Drop in Retirement Coverage for All Income Levels,” because the decline in retirement plan coverage reported by SCEPA is almost surely a problem with the data SCEPA uses rather than the retirement saving environment.
The SCEPA article relies on the Current Population Survey, which is jointly conducted by the Bureau of Labor Statistics and the Census Bureau. The CPS figures for retirement plan coverage are frightening. In 1979, roughly half of full-time workers reported being offered a retirement plan at work. In 2013, the figure was again about one-half. But from 2013 through 2016 reported retirement plan coverage dropped from 47% to 37%, with only a modest rebound to 38% by 2017. If true, these data show a precipitous decline in the share of workers who are offered a retirement plan at work, which is the most common way in which Americans save for old age.
So what happened? Well, what didn’t happen is that employers abandoned retirement plans in droves. If nearly one-in-five employees lost their retirement plan coverage over the space of four years, that would make headlines. We’d know of big, prominent companies that had discontinued their 401(k) or other retirement plan. Can you name one? Me, neither.
What actually happened has very little to do with pension coverage and a lot to do with how we measure pension coverage. In 2014 the Current Population Survey redesigned how it asks households about both retirement plan coverage and the income they receive from those plans in retirement. The Employee Benefit Research Institute has paid a lot of attention to this issue; you can read more about it here. While it’s not clearly understood why, that redesign produced a dramatic reduction in the percentage of workers who say they’re offered a retirement plan at work. EBRI warned that the most recent CPS data potentially erroneously [give] the impression the percentage of workers participating has declined. Consequently, unless modifications are made to the CPS, continuing to use it for estimating the participation in employment-based retirement plans will provide misleading and inaccurate estimates and conclusions about these plans.
And that’s pretty much what seems to have happened in the SCEPA report.
One reason we can be confident the problem is in the CPS data, not the real world, is that we’re not seeing a similar decline showing up in other government datasets. For instance, the Federal Reserve’s Survey of Consumer Finances (SCF) shows that retirement plan coverage actually rose by around two percentage points from 2013 to 2016, from 60.9% to 63.0%. (This is for working-age households with earnings at least equal to full-time employment at the minimum wage.) It’s also a very similar coverage figure to 1989, the first year for which SCF data are available. So short-term or long-term, not much seems to have happened.
We can also look at the Bureau of Labor Statistics National Compensation Survey, which is a survey of employers rather than of employees. The NCS data show no real change in retirement plan participation in recent years. In 2018, the NCS shows that 81% of full-time employees were offered a retirement plan and 61% participated, with very little change in any year since 2010. Going further back it’s more difficult to isolate figures for precisely this employee population, but comparisons of other groups don’t show large changes over time.
And that actually raises some interesting questions. On the one hand, it doesn’t appear that the decline of defined benefit pensions in the private sector meant the end of retirement plans. On the other, the fact that retirement plan participation rates seemingly haven’t risen in response to the introduction of “auto-enrollment” features for many 401(k) plans is worrying.
For instance, let’s look only at full-time, private sector employees. In 2000, 55% of this group was participating in a retirement plan; 20% had a DB plan and 42% had a 401(k)-type plan, with some employee having both. In 2003 the Pension Protection Act made it easier for employers to automatically enroll workers in 401(k) plans. By 2018, participation for this group had risen to 61%. An 11% relative increase in the number of workers saving for retirement isn’t nothing. And, in combination with the fact that both employers and employees contribute to 401(k) plans, versus only employers for traditional pensions, it buttresses my view that we don’t face a “retirement crisis.” Of today’s full-time private sector employees, 20% still had traditional pensions, while 74% had defined contribution plans.
And yet, one can’t help being a bit disappointed given some of the results of the early behavioral economics research, which found very strong positive participation effects from auto-enrollment. According to the BLS, only around 40% of full-time employees who participate in a defined contribution plan are in one that utilizes automatic enrollment. Some employers have resisted auto-enrollment as appearing too prescriptive, while others may worry that it will increase their contribution matching costs. But making auto-enrollment universal could have significant positive effects on participation and there’s still room to improve.
Nevertheless, the truth remains: there hasn’t been a dramatic decline in pension coverage or participation in recent years, in contrast to the SCEPA article’s conclusions. And that’s good news.
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