DC Plan Participation Rates Vary by Employee, Employer Characteristics

Among all workers, 44% participate in a defined contribution (DC) retirement plan according to a Beyond the Numbers report from the Bureau of Labor Statistics, “Defined contribution retirement plans: Who has them and what do they cost?”

Data from the BLS National Compensation Survey (NCS) shows overall employee participation rates for DC plans vary significantly by some worker characteristics. This is because many employers do not offer the benefit or, for those employers that do offer the benefit, their employees may not want to contribute any of their salary in order to participate. Workers in high-paying jobs, for example, are more likely to participate in DC plans than are workers in low-paying jobs. In 2016, 63% of management, professional, and related workers (relatively high-paying jobs) participated in DC plans, compared with 19% of service workers (relatively low-paying jobs).

The five types of DC retirement plans reviewed in the report are: savings and thrift, deferred profit sharing, money purchase pension, employee stock ownership (ESOP), and savings incentive match plan (SIMPLE). The rate of employee participation varies by type of plan, by worker and establishment characteristics and geographic areas. In 2015, 74% of all private industry workers participating in DC plans participated in savings and thrift plans; also of note, in establishments with one to 99 workers, 66% of workers participated in savings and thrift plans. In establishments with 100 or more workers, 81% participated in savings and thrift plans.

Savings and thrift is the most prevalent type of DC plan. NCS data show that in 2015, 62% of savings and thrift plan participants were in plans in which the employer matched up to a specified percentage of employee earnings. Of those plans, one-half matched up to 6% of employee contributions (or earnings) and the remaining half matched lower contribution ceilings, typically 3% or 4% of earnings. In 2015, 100% of savings and thrift plans had provisions that permitted employees to make pre-tax contributions, and 50% of plans permitted post-tax contributions.

Employer costs for DC plans are presented in two ways:

• Costs per hour worked. This amount is averaged out among all private industry employees in the economy, even those who are not participating in a plan.
• Worker participation costs per hour. This amount represents the actual employer costs per hour worked only for those employees who are participating in defined contribution plans.

In March 2016, the overall employer cost for providing DC benefits was $0.70 per employee hour worked in private industry. Employer costs per hour worked for DC plans vary significantly by some worker and establishment characteristics and by geographic areas. Often, the main factor determining the costs for the plans is the wage rate that an employer pays a worker for a particular job—the contribution that the employer makes to an employee’s account often is based on a percentage of the employee’s wages. In March 2016, the average employer cost per hour worked for DC plans was $1.52 per hour worked for management professional and related workers—approximately 10 times more than the $0.15 per hour worked for service workers.

Large establishments also, for example, pay a higher cost per hour worked for DC plans than do small establishments in part because large establishments often pay higher wage rates than small establishments. In March 2016, the average employer cost per hour worked for DC plans in establishments with 100 or more workers was $1.01 per hour worked, compared with $0.45 per hour worked in establishments with one to 99 workers.

For management, professional, and related workers, using the worker participation rate of 63% to calculate the worker participation cost shows that the employer cost is $2.41 per hour worked. For service workers, using the worker participation rate of 19% to calculate the worker participation cost shows that the cost is $0.79 per hour worked—an approximately threefold difference in the cost ratio compared to an approximately tenfold difference in the cost ratio seen in the overall employer cost per hour worked for these two groups of workers.

Likewise, worker participation costs per hour worked for DC plans vary when comparing costs between large and small establishments. When factoring in that for establishments with 100 or more workers, only 57% of workers participate in DC plans, and for establishments with one to 99 workers, only 34% of workers participate in DC plans; the worker participation cost per hour worked for plans for establishments with 100 or more workers is $1.77 per hour worked, only 1.3 times more than the $1.32 per hour worked for establishments with one to 99 workers.