More Accurate Retirement Plan Research (Finally) on the Way

CPS, ICI, EBRI, retirement income
The goverment changes its variables.

The Current Population Survey (CPS) from the U.S. Census Bureau is a perennial problem for industry research and advocacy groups, who argue its methodology is flawed and it, therefore, underreports the number of Americans who participate in employer-sponsored retirement plans.

At issue is the Annual Social and Economic Supplement to the CPS, one of the most-cited aggregates of data for retirement-age Americans.

The Census Bureau redesigned its retirement income questions in a 2014 survey in response to reports that the survey has misclassified and generally under-reported income, which the Employee Benefit Research Institute, as well as the Investment Company Institute, argued only exacerbated the problem, especially retirement plan participation rates.

“Unless modifications are made to the CPS, using the CPS for estimating the participation in pension and other retirement plans will provide misleading and inaccurate estimates and conclusions,” EBRI said in 2016. “The support for this assessment includes the much lower level of participation found under the redesigned questionnaire estimates … and the inconsistent time series in the participation levels in CPS relative to other federal government surveys.”

CPS changes

It appears the Census heard the complaints (maybe). The 2019 dataset has added-variables relating to income earned in a retirement account.

“Presumably, if workers earned income in a retirement account, it is safe to assume that they had a retirement account, meaning they were participating in a retirement plan,” EBRI writes in its latest issue brief, Retirement Plan Participation and the Current Population Survey: The Impact of New Income Questions on These Estimates. “When adjustments are made to the estimates using the new questions, the CPS numbers much more closely match other sources on retirement plan participation.”

For example, EBRI’s Senior Research Associate Craig Copeland notes that the percentage participating has generally declined since the 2014 redesign for each of the workforce definitions studied, reaching a low of 31.6% in 2018.  However, when adjustments were made for the new questions, the percentage participating increased to 47.5% for all workers in 2018.

“Now that the CPS allows for a new baseline of the combination of the results from the traditional and new questions, the validity and stability of the estimates can be tested as more years of data become available,” Copeland concludes in the issue brief.

So, for now, it’s wait and see, but it appears more accurate information to potentially influence policy is on the way.

John Sullivan
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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.

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