Employee Benefits

How many workers have a employer-based retirement plan? Depends on who you ask and what you ask.

From the US Department of Labor website:

Myth: Most workers do not have access to employer-sponsored retirement or health benefits.

Fact: About 54 percent of America’s workers have access to employer-sponsored retirement benefits. And nearly 6 in 10 receive health coverage through their employers. This year marks the 40th anniversary of the Employee Retirement Income Security Act, the law that protects 684,000 retirement plans, 2.4 million health plans and 2.4 million additional welfare benefit plans. These plans cover 141 million workers and beneficiaries, and include more than $7.6 trillion in assets.

Before we overreact here, remember “retirement benefits” includes what is known as defined contribution plans; 401k, 403b plans in addition to the relatively few workers who have traditional pensions or defined benefit plans. In fact, traditional pensions have steadily been declining.

Here is what the Employee Benefits Research Institute presents on retirement plan coverage. Note that here we are talking about private sector employers only.

Figure 1 shows the percentage of all private-sector wage and salary workers in each type of retirement plan. For instance, Figure 1 shows that in 2011, 31 percent of all private-sector workers participated only in a defined contribution plan (DC) and 3 percent participated only in a defined benefit (DB) pension plan. (11 percent had both a DC and a DB plan, and the residual percentage is the fraction of private-sector wage and salary workers who were NOT a participant in an employment-based retirement plan).

Including those who participated in both a DB and DC plan, 42 percent of all private-sector wage and salary workers participated in a DC plan, and 14 percent participated in a DB plan.

IMG_1749.GIF

The fact is real pensions, that is a defined benefit pensions, have been in steady decline for years, precipitated in part by the cost, complexity and requirements imposed by ERISA. The exception is the public sector where virtually all state, local and federal employees have a defined benefit pension. So, when the Department of Labor views 54 percent of American workers with an employer retirement plan as a positive, it’s a bit misleading and far from a positive story.

The number to be concerned about is that only 14% of private sector workers have a defined benefit pension providing a lifetime annuity. Somewhat ironically those workers at all income levels in the private sector who may have no retirement plan or only a defined contribution plan are paying for the typically generous pensions for public employees. This seems like an inequity that slips under the radar.

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