Participation in Retirement Plans Increases Focus on Financial Future

An analysis from Pew Charitable Trusts of data from a nationally representative internet survey of private-sector workers shows a correlation between access to and participation in workplace-based retirement savings programs and more planning and saving.

Overall, workers with access to an employer-sponsored retirement plan were much more likely to report that they had tried to figure out in the previous two years how much retirement income they would need (41%), compared to those with no access (16%). Past participation in a workplace savings program also is associated with a greater likelihood of retirement planning: among workers who do not currently participate, 30% of those who do not currently have access and 33% of those with access but who do not participate report planning for retirement. That’s about twice as high as those who never participated, regardless of access.

Even when accounting for other worker characteristics, such as education, race/ethnicity, gender, household income, unemployment history, and age, those who have never participated in employer-sponsored retirement plans are much less likely to plan for retirement than those who have participated or are currently participating. During a media call, John Scott, director, The Pew Charitable Trusts’ retirement savings project, said, “Most do not determine retirement savings need. A higher level of education is associated with greater planning and men tend to plan more than women—a disturbing finding given that women tend to live longer than men.”

A history of plan participation appears to play a role in the resources used. For example, those workers who have never taken part in an employer-sponsored plan are significantly less likely than those who currently do or have done so in the past to say they have used a financial professional or automated statements from financial providers. They also are much more likely to “guesstimate,” or make informal calculations. Moreover, 28% of those who have never participated in an employer-sponsored plan have only guesstimated, compared to 14% of workers who have ever taken part and 8 percent of those who currently participate.

Workers who have participated in a workplace plan use more rigorous tools to determine retirement income needs. For example, 58% of those who currently participate in a workplace retirement plan have used online tools or calculators to determine retirement income needs, as well as 46% of those who have ever participated in a workplace retirement plan. Thirty-nine percent of those currently participating in a workplace retirement plan have used a financial professional to determine retirement income needs, as well as 43% of those who have ever participated. Only 16% of those who have never participated in a workplace retirement plan have used a financial professional to calculate future income needs. “Getting these resources into workers’ hands will very likely result in an increase in their use,” Scott said.

Having any retirement savings does not mean that respondents actively contribute to such a plan. For example, a person might have contributed money or rolled over a prior retirement account to an IRA but is not currently making contributions. When asked, 38% of workers who have any savings but do not have access to an employer-sponsored plan said that they had not contributed in the past two years; 3% said they were not allowed to contribute.

Among those currently participating in employer- sponsored plans, only 8% did not contribute or had decreased their contributions, compared with 45% to 52% of all others regardless of current access or participation history.

Asking how workers would use a hypothetical $10,000 windfall can help reveal savings and spending priorities, Pew says. On average, those without access to a retirement plan would allocate $1,580 toward retirement, more than those with access to a plan who are not currently participating, possibly because they cannot save at work. Workers are more likely to use the hypothetical money to pay down debt or build liquid savings than to boost retirement savings, which suggests that these factors may be more pressing concerns for many workers.

“Paying down debt was the top response for all survey participants. Retirement savings should be viewed in the context of workers’ broader financial situation. Policymakers may consider combining retirement savings with help with other financial priorities,” Scott said.