Is Retirement Plan Participation Underreported?

Another study concludes that a widely used government report of retirement plan participation understates reality.

A new analysis of tax data published by the Investment Company Institute (ICI) finds that nearly two-thirds (63%) of workers aged 26 to 64 in 2014 participated in an employer plan or had a spouse who participated. Moreover, among those most likely to save for retirement in the current year, 77% participated in an employer plan, either directly or through a spouse, according to the report, “Who Participates in Retirement Plans, 2014.”

The study also confirmed that the apparent underreporting of retirement plan participation in the US Census Bureau’s Current Population Survey (CPS) increased substantially following a recent revision to the household survey’s questionnaire. The CPS participation rate dropped sharply beginning in 2014, the first data collected using the new questionnaire. In contrast, the tax data show that the retirement plan participation rate has held steady since 2008, according to ICI.

It wasn’t the first time ICI has questioned the CPS data. Not quite a year ago, a similarly titled study by ICI drew many of the same conclusions. Nor was it the first time that the results of the CPS survey changes – and resulting change in data – have 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. In its previous report, ICI noted 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. In its most recent analysis, ICI notes that comparisons with tax data to the Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS) “…suggest that the ASEC understated the participation rate by about 5 percentage points from 2008 to 2013,” and that between 2013 and 2016 “…the ASEC participation rate fell 12 percentage points following a revision to the survey questionnaire—a drop that is not corroborated in any other data source.”

Previously, EBRI noted that in response to past research showing that the survey misclassified and generally underreported income – particularly pension income – the Census Bureau conducted a redesign of the CPS questionnaire in 2014, and while the changes appear to have improved the accuracy of data on pension income (which increased under the redesigned CPS), EBRI noted they also resulted in historically “sharp and significant” reductions in the levels of worker participation in employment-based retirement plans.

In its most recent analysis, ICI looked beyond the overall participation rate to show that participation increases with both age and income. In 2014, 56% of workers aged 26 to 64 participated in an employer-sponsored retirement plan, and another 7% did not participate but had a spouse who did. For workers aged 45 to 64 with income of $30,000 or more, however, 77% participated or had a spouse who participated.

ICI notes that the share of workers who were active participants in a retirement plan or had a spouse who was an active participant was higher for older workers (68% among those workers aged 45 to 64), and higher still for older workers with more income (77% for workers aged 45 to 64 with adjusted gross income [AGI] of $30,000 or more).

“More American workers are benefiting from employer plans than the conventional wisdom would suggest,” says ICI Senior Economist Peter J. Brady, who coauthored the paper with ICI Associate Economist Steven Bass. “This is for two reasons. First, the most widely cited statistics undercount retirement plan participation. Second, many only look at the headline statistic, which provides a snapshot of participation at a single point in time. But preparing for retirement is more like a movie than a snapshot, and what matters are the resources that accumulate throughout a career. Many of the younger and lower-income workers who are not participating today will do so later in their careers, and as a result, will reach retirement having accumulated employer plan resources.”

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