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Commonly Cited Participation Gauge Misses the Mark, Study Says

A new study finds a higher rate of workplace retirement plan participation, and claims that a widely cited measure of participation understates reality by about 5 percentage points.

The new information comes from a study by the Investment Company Institute (ICI), based on newly available IRS data. That new report indicates that nearly two-thirds (63%) of all workers ages 26 to 64 participated in an employer-sponsored retirement plan either directly or through a spouse.

Those findings stand in some contrast to a widely cited source on retirement plan participation, the U.S. Bureau of Labor Statistics’ Current Population Survey (CPS), which, between 2008 and 2013, understated retirement plan participation by about 5 percentage points, according to ICI’s analysis.

EBRI Analysis

That wasn’t the first time the CPS data – which in 2014 underwent a redesign of certain questions relating to income – has been questioned. In 2016, the nonpartisan Employee Benefit Research Institute (EBRI) noted that the CPS data appeared to be resulting in a significant undercounting how many people participate in an employment-based retirement plan. In fact, EBRI noted that results produced from the redesigned CPS indicated that the groups of workers with the biggest drops in participation were those with the highest likelihoods of participation – older, higher earners, and employees of larger employers. ICI notes that the CPS participation rate inexplicably fell 10 percentage points between 2013 and 2015 following a revision to the survey questionnaire—a drop that is not corroborated in any other data source.

The ICI report, “Who Participates in Retirement Plans,” goes on to note that most statistics lump together younger and older workers, ignoring the fact that the participation rate increases as workers approach retirement. Participation ranged from 52% of those aged 26 to 34 to 68% of those aged 55 to 64. Retirement plan participation also increases with income; 73% of individual filers with adjusted gross incomes (AGIs) of $20,000 or more and joint filers with AGIs of $40,000 or more participated in retirement plans directly, or through a spouse. For individuals with AGIs less than $20,000 per person, 25% participated. For those with AGIs of $100,000 per person or more, 85% participated.

Income ‘Tact’

ICI explains that if the lowest-income workers are excluded from the analysis, 77% of workers participated in a retirement plan, either directly or through a spouse, in 2013. In contrast, 38% of the lowest-income workers participated. Lowest-income workers are defined as workers with AGI less than $20,000 for non-joint returns or with AGI less than $40,000 for joint returns, and workers aged 26 to 44 with AGI from $20,000 to $40,000 for non-joint returns or with AGI from $40,000 to $75,000 for joint returns.

The ICI paper focuses on the 109.7 million working taxpayers who are aged 26 to 64, which it says represent the bulk (77%) of workers. It excludes 24.1 million workers (17% of workers) who are age 25 or younger, and it excludes 8.1 million workers (6% of workers) who are age 65 or older. It uses new tabulations of 2013 tax data published by the IRS Statistics of Income (SOI) Division to analyze participation in employer-sponsored retirement plans. To be an active participant, a worker must have made a contribution or have had an employer contribution to a DC plan or had a DB plan through their employer.

The ICI has previously used tax data that indicates that American workers aren’t experiencing a drop in income after retirement.