Great News About 401k Participation Rates!

Commonly cited statistics 'understate retirement plan participation'

401k, ICI, participation rates, retirementThey're really happy they have a 401k.

Great news from the IRS—wait, what?

Almost two-thirds of taxpayers (and therefore workers) participate in some sort retirement plan directly, or through a spouse, according to Investment Company Institute analysis of tax data.

It’s higher than previously thought and contradicts earlier claims.

The investment research and advocacy organization also found that another popular measure of plan participation rates underestimates the number of employees covered.

Sifting through reams of IRS data, ICI notes that 63 percent of all workers aged 26 to 64 participated in an employer-sponsored plan either directly or through a spouse.

It counters the most commonly cited data on retirement plan participation, the Bureau of Labor Statistics’ Current Population Survey (CPS).

Between 2008 and 2013, the CPS understated retirement plan participation by about 5 percentage points, ICI claims.

“More American workers are benefiting from employer plans than the conventional wisdom would suggest,” says ICI Senior Economist Peter Brady, who authored the paper.

Brady argues the “common view” of retirement preparation is distorted by two factors.

First, the most commonly cited statistics “understate retirement plan participation.”

Second, most statistics lump together “younger and older workers, ignoring the fact that the participation rate increases as workers approach retirement.”

“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,” he adds.

Retirement plan participation increases with age

Participation ranged from 52 percent of those aged 26 to 34 to 68 percent of those aged 55 to 64. These data are consistent with generational savings patterns observed in previous studies.

Specifically, younger households are more likely to report that they save primarily for reasons other than retirement—for example, for a home purchase, for the family, or education.

Retirement plan participation increases with income

Almost three-quarters—73 percent—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 percent participated. For those with AGIs of $100,000 per person or more, 85 percent participated.

Tax data offers an ‘alternative source’ for participation rates

Recent changes to the CPS underscore the need for more reliable measures of retirement plan participation.

Specifically, comparisons with tax data suggest that the CPS understated the participation rate by about 5 percentage points from 2008 to 2013. 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.

Be the first to comment on "Great News About 401k Participation Rates!"

Leave a comment

Your email address will not be published.