“Lies, damned lies, and statistics.” 401(k) industry advocates have long touted the high rates of enrollment in employer-sponsored plans, while bemoaning the fact that more companies don’t offer them. Now, a new study finds an “unexplained” drop in employee 401(k) participation rates overall, but a prominent industry research group in taking issue with the numbers.
Confused yet? So are we.
Estimates from the U.S. Census Bureau show a drop in the percentage of Americans who participate in a workplace retirement plan. However, the results raise doubts about the use of Census data to assess current and future retirement plan coverage, according to a new analysis by the Employee Benefit Research Institute.
At issue is the Annual Social and Economic Supplement (fielded in March) to the Census Bureau’s findings, which is one of the most-cited sources of data for retirement-age Americans. The Census Bureau redesigned the income questions in a 2014 survey in response to findings that the survey has misclassified and generally under-reported income.
While the redesign of the survey did capture more income (especially pension income), EBRI notes, it also significantly lowered the survey’s estimates of retirement plan participation among those most likely to participate [emphasis ours]. Furthermore, these new participation results trended downward in contrast to other surveys on retirement plan participation.
“There are unexplainable decreases in the participation level after the redesign and conflicting time series of the participation levels relative to other surveys,” said Craig Copeland, EBRI senior research associate and author of the report. “These problems raise doubts about the use of participation data, especially for time series trends on retirement participation levels.”
As the EBRI report points out, the Census Bureau redesigned the income questions to address the issues from the prior design. In 2014, researchers at the Census Bureau conducted a test of the new set of income questions by doing a spilt-panel design. The new questionnaire resulted in higher percentages of individuals with pension income, but lower percentages of workers with a workplace retirement plan for that same year.
“While the redesign of the questionnaire achieved one of its primary goals of capturing more income, especially pension income, it also resulted in sharp declines in the estimated retirement plan participation levels of current workers,” Copeland said. “Furthermore, those most affected were those groups with the highest likelihoods of participation—those older, with higher earnings, and working for larger employers.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
