More than half of American workers—55.5%—lack access to employer-sponsored retirement plans, according to data from a new EIG analysis released Aug. 10.
New data focused on analyzing state-by-state disparities from the Economic Innovation Group shows that in 2021, 69 million—equating to 55.5%—of workers lacked any kind of employer-provided retirement plan, and EIG found that group to be made up disproportionately of low-income earners.
“Unfortunately, access to employer-provided retirement plans remains deeply divided across earning levels and regions of the country,” the report states.
Per the report, across the U.S., nearly 41 million people—or one in three workers—earned less than $37,000 in the previous year, the 33rd percentile of wage and salary income. “We consider this group the low-income workforce. Only 30% of the low-income workforce has access to an employer-provided retirement plan, which means approximately 28 million workers do not,” the report found.
Florida, Georgia, Rhode Island have worst access
The research found there is a clear regional and state variation in where the largest gaps in workplace retirement plan access exists. States with the lowest levels of access, Florida (33%), Georgia (37%), and Rhode Island (39%), all lag significantly behind the best performers, which were Iowa (58%), Idaho (57%), and Montana (55%). At 49%, the Midwest has the highest regional rate of access in the country, 7 percentage points higher than the South, which comes in last at 42%.
The data snapshot explores the geographic variation in employer-provided retirement plans using state-level data from the Bureau of Labor Statistics’ Current Population Survey (CPS).
Florida, California, Connecticut worst for low-income workers
When it comes to access for low-income workers specifically, Florida, California, and Connecticut are the worst-performing states, in which less than one-quarter of low-income workers have access. This report said this is particularly consequential in California, where 3.6 million low-income workers lack access to an employer-provided retirement plan—the most in the nation.
“As a result, low-income workers in one of the highest cost-of-living states have among the worst retirement prospects in the nation.” New York (26%) and New Jersey (26%) round out the bottom five states, spanning a wide range of policy environments and workforce characteristics.
1 in 5 low-income workers participate
According to the report, only 19% of all low-income workers nationally participate in an employer-provided retirement plan.
Even when workers do have access, there is a 26 percentage-point gap in participation between low-income workers and all others—in 2021, only 37.3% of all workers and 19.3% of low-income workers participated in an employer-provided retirement plan.
“The large and persistent gap in participation points to the difficulties many low-income workers have setting aside savings for retirement even when plans are available to them,” the report states. “Legislation enacted in December 2022 (SECURE 2.0) requires firms that offer plans to automatically enroll their workers, but since most low-income workers do not have access to employer-sponsored plans in the first place, those provisions will have limited impact going forward.”
The EIG report said that presently, the bottom 20% of households receive just 1.3 percent of the benefits from federal subsidies to encourage employer-sponsored retirement savings. “Bold action is needed to make the nation’s retirement savings system—one of history’s greatest wealth-creating engines—work better for all workers, especially those who need help building wealth most acutely.”
The EIG study went on to say that simply encouraging greater access to retirement plans may not be enough to increase take-up among low-income workers, which is why the Washington, D.C.-based think tank is backing the bipartisan Retirement Savings for Americans Act, first introduced in late 2022 and expected to be reintroduced on Capitol Hill this fall.
The anticipated bill follows recommendations outlined in an EIG research paper by economists Kevin Hassett and Teresa Ghilarducci to enact a retirement savings program aimed at low-income workers by building on models like the federal Thrift Savings Plan.
Bill not supported by ARA
“We do not agree that the solution is to create an alternative retirement plan run by the federal government.”
ARA CEO Brian Graff
The bill has drawn the ire of the American Retirement Association. Back at the NAPA 401(k) Summit in April, ARA CEO Brian Graff characterized the bill as an attack on the private retirement plan industry, and said that while NAPA was not worried the bill will become law this year or even next year, the concern should be that there actually bipartisan support for the idea of a federally run retirement savings plan.
Asked about the new report from EIG, Graff told 401(k) Specialist: “We agree that retirement plan coverage needs to be expanded so that all working Americans have an opportunity to achieve a comfortable retirement and have been working closely with Congress on a bipartisan basis to enact legislation, like the provisions in the recently passed SECURE 2.0, which are intended to close the retirement plan coverage gap. We do not agree that the solution is to create an alternative retirement plan run by the federal government.”
SEE ALSO:
• TSP-Like ‘Retirement Savings for Americans Act’ Introduced with Eye on 2023
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
