Fake News — It’s Worse Than You Thought

Study after study shows that when given the opportunity to save in a workplace retirement plan, Americans do just that – but reports of a new study claim that only a third are saving money in an employer-sponsored or tax-deferred retirement account.

That study – more precisely a draft of a study identified as “preliminary and incomplete” – has found its way into the headlines. The reason? Because while it concludes that roughly 80% of Americans work for an employer that offers a retirement plan, they claim that the take-up rate among what they consider to be full-time workers is just 45.7%. To make matters worse, the press coverage takes those numbers and multiplies them to justify the headline that only about a third of those who work for an employer who offers a DC plan contribute to it. Or the inverse, that “Two-Thirds of Americans Aren’t Putting Money in Their 401(k).”

Now, those who actually work with retirement plans will be stunned by those numbers. Industry surveys that look at the actual contribution and participation rate of individuals who are eligible to participate in those workplace plans routinely find that anywhere between 65% and 75% of those eligible to participate do so, and when best-of-class plan designs like automatic enrollment are employed, more than 9 out of 10 do so. In fact, data from the non-partisan Employee Benefit Research Institute indicates that moderate income workers, those earning between $30,000 and $50,000/year, are 15 times more likely to save when they have access to a plan at work.

So how does this new study manage to produce a result so out of touch with reality? Well, for one thing, they don’t stop to worry about “details” like the legal ability to contribute to the plan. For their purposes, if you work for an employer who offers a plan and don’t contribute – even if you are not eligible to do so – you get added to the “not contributing” pool.

That’s not the end of it – to get there, the researchers at the U.S. Census Bureau have to undertake a bit of mathematical gymnastics. They start by taking W-2s and looking at everybody who has any contributions listed in Box 12 (this is where your pre-tax 401(k), 403(b) and 457 contributions are recorded). They then take the employer identification number (EIN) from that W-2, and connect that to any other worker who has that same EIN on their W-2. And then they assume that all of those individuals are covered by that DC plan. Beyond that, lacking the check box data in their dataset, they don’t get a true coverage number. And while they acknowledge this shortcoming in the report, they miss out on those who are receiving only employer contributions and after tax contributions, including Roth contributions.

Of course, as we noted above, that ignores the reality that some folks work for an employer that sponsors a plan in which they are not eligible to participate. These researchers count those zeroes in the non-take-up category.

They also manage to establish as a criterion for full-time employment anyone whose W-2 indicates that they made more than $3,770 as a full-time worker in their numerator. That’s right, you could be making as little as $4,000 a year, and if you contributed nothing to the plan, you’d be included in their non-take-up group.

Are retirees in the mix as well? If they get a W-2, they would be. But they wouldn’t likely be saving for retirement, would they? Still, they go into the “covered” count in the research, even though they aren’t contributing.

And what about those who work for two different employers during the year? Who get two different W-2s, with two different EINs? But who, because they don’t work very long for either employer, don’t contribute to either plan?

You can begin to see where this could be heading. While invoking credible sources of data (W-2s, 5500s), they have nonetheless cobbled that data together in such a way as to potentially produce mush. By presuming that everyone is covered because they have the same EIN that someone else has for coverage, they are overstating coverage. And, because of the factors listed earlier, they are also underreporting participation.

But wait – there’s more.

While a reliance on W-2 data has some allure, the broad net these researchers cast produce something of an apples-and-oranges mix in terms of other results as well. Their data includes a chunk of workers in the public and education sectors. Now, many of these individuals work for an employer who offers a plan, but many don’t make pre-tax contributions because they are covered by a defined benefit program. Not that these researchers don’t acknowledge this trend, but they make no attempt to qualify their conclusions. The net effect? A bump in the “covered” count, not so much in the take-up rate.

So, let’s recap: They take W-2 data, ignore eligibility rules, double-count people who may work for more than one employer during the year, broaden the notion of “covered” to include individuals who make as little as $72.50 a week, bring in a group that they acknowledge is less inclined to make pre-tax contributions because they are covered by a defined benefit plan (that is not included in the data), and likely include retirees – basically expanding the denominator of their take-up equation beyond the realm of common sense while at the same time goosing the numerator with lots of zero-contributor categories.

No wonder they produce a result that is so completely out of touch with reality.

Some have titled their coverage of this report, “It’s worse than you think.” Indeed it is.

But here we’re actually talking about the quality of the reporting, as well as the report’s conclusion.

Add Your Comments


  1. Lisa Perry
    Posted February 28, 2017 at 10:45 am | Permalink

    Brings to mind the old saying “figures dont lie, but liars figure”.

  2. url url'>Sue Feller
    Posted February 28, 2017 at 10:58 am | Permalink

    You mention that ees may not contribute any 401(k) monies because they participate in a defined benefit plan as well. True, but what about those ees who don’t contribute anything to their dc plan because the plan is a profit sharing plan with no 401(k). We are a TPA firm where more than half of the dc plans we administer are profit sharing plans with no 401(k).

  3. url url'>Scott Friel
    Posted February 28, 2017 at 11:13 am | Permalink

    Thank you, great analysis and article! The job is difficult enough without pandering to sensationalistic and flawed reporting that lends itself to the psychological phenomenon of individuals simply giving up and choosing not to take action when faced with overwhelming numbers. There’s a significant danger of “pack mentality” taking hold where participants opt to forgo opportunity because “nobody else is doing it!”

  4. url url'>Rod Diaz
    Posted February 28, 2017 at 1:26 pm | Permalink

    Right On! Thanks for addressing the issue. I was beyond upset when I saw the Bloomberg article about the “study” last week. Incendiary headlines like that don’t help the industry one bit. Thank you for setting the record straight.
    Admittedly, as an industry, we do have work to do to increase coverage so that more American are offered a plan, and more employees choose to participate in those plans; but the glass is much more than half-full when it comes to this effort. Where we really need to place some effort is in quantifying our progress towards this end. The reason reports like this come out, is because we fail to have undisputed statistics and facts that back-up exactly where we are in this fight. If we had these critical figures last week’s article would be feckless in the media.

  5. Robb Smith
    Posted March 1, 2017 at 7:40 am | Permalink

    Great analysis, Nevin. Thanks for sharing. I’ve read these hit pieces and was surprised and alarmed. Your article puts it all into perspective. I would imagine they also fail to take into account other pre- and after tax savings vehicles people use to save for retirement.

  6. Nevin E. Adams, JD
    Posted March 1, 2017 at 9:41 am | Permalink

    Thanks for all the comments. Sue, you are completely correct – basically if it (the contribution) wasn’t reported in Box 12 – and those profit-sharing contributions aren’t – they weren’t picked up.

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