Americans who save for retirement do so primarily through employer-sponsored plans. That’s why having access to a savings plan and choosing to take part are so critical: Regular deductions from a worker’s pay allow for easy, habitual savings that grow over time. Policymakers looking for ways to boost retirement savings can evaluate what motivates workers to save—and what may keep them from doing so.
Small and midsize businesses are less likely than large businesses to offer retirement plans to their employees. A national survey of employees at small and midsize businesses finds that lack of access to a workplace plan and lack of familiarity with the various options are among the key barriers to saving for retirement. A recently published Pew report, "Survey Highlights Worker Perspectives on Barriers to Retirement Savings", shows how demographic and workplace characteristics affect whether people save.
The results indicate that few workers at small to midsize firms without access to an employer-sponsored savings plan have set aside any money for retirement, a finding that underscores the importance of opportunities to save on the job. About two-thirds of private sector workers have access to an employer-sponsored plan. Of that group, 68 percent participate, meaning that less than half—about 45 percent—of all full-time workers are enrolled in a plan.
According to the survey, those least likely to have access at small to midsize businesses include workers with low or volatile income streams, those working part time, those who have been unemployed for at least a month in the past two years, and those who are Hispanic. Workers who are older, those who have done some retirement planning, and those with household incomes of at least $100,000 are most likely to participate if a plan is available.
The size and type of business also matter. For example, workers in wholesale and retail trade are less likely to have a workplace plan than those in other industries. And full-time workers at companies with five to 24 employees are less likely to have access to and participate in an employer-sponsored plan than those at firms with 100 to 500 employees.
Some form of employer contribution makes a big difference in whether workers with access to a plan participate. Full-time employees at businesses that contribute to a retirement plan are almost three times as likely to participate as those who work for employers that do not.
Retirement income can also come from personal savings, such as individual retirement accounts (IRAs), but just 28 percent of full-time workers at small to midsize companies without access to an employer-sponsored plan report having any other savings. White workers, older workers, and those with at least a bachelor’s degree are more likely than Hispanic workers, younger workers, and those with less education, respectively, to report that they have any retirement savings. In addition, those who lack access to a plan but report having retirement savings are more likely to say they have not added to those savings in the past two years, compared with those who participate in employer-sponsored plans.
Spurring people to participate in a retirement plan—employer-sponsored or otherwise—may depend on workers having greater familiarity with retirement savings options. The survey, however, shows that few have a good sense of the possibilities. Asked about six options, respondents were most familiar with 401(k) plans: 87 percent were somewhat or very familiar with these. Much smaller numbers were familiar with other choices, such as Roth IRAs (64 percent) or annuities (43 percent). Only 13 percent reported being “somewhat” or “very familiar” with all six options.
The survey examines the barriers that many workers at small to midsize businesses face in building retirement savings. Some do not have access to a workplace plan at all. Others may choose not to participate in an available plan because of more immediate financial concerns, such as a mortgage or a child’s education.
The worker concerns reflected in the survey findings point to the need for policymakers to consider multifaceted approaches to helping people save for retirement, in part to make sure that they also can address other needs, such as costly emergencies.
One option that policymakers in a number of states are implementing is a state-sponsored auto-IRA, often referred to as a secure choice program. Workers without access to an employer-sponsored plan would be enrolled automatically, though they would have the ability to opt out. Under certain situations, workers could access their funds for emergencies. Other approaches state lawmakers are considering include marketplace plans and multiemployer plans.
Forthcoming research by Pew’s retirement savings project will look at worker attitudes about auto-IRAs. The survey findings can help guide policymakers who are working to create effective programs that will be received positively by both employers and employees.
John Scott directs The Pew Charitable Trusts’ retirement savings project, and Sarah Spell is a senior associate with the project.