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Pension Participation and Uncovered Workers

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Publication Date: August 2010

Publisher(s): Center for Retirement Research at Boston College

Author(s): Nadia Karamcheva


Special Collection:

Topic: Economics (Economic research)

Keywords: private pensions

Type: Report

Coverage: United States


In 2008, the Obama campaign proposed a “Plan to Strengthen Retirement Security.” This plan consisted of items ranging from increasing the threshold of the Social Security payroll tax to expanding the Saver’s Credit for families earning under $75,000. One of the more far-reaching proposals would require employers with 10 or more employees to automatically enroll their employees in Individual Retirement Accounts (IRAs). As a default, 3 percent of each worker’s earnings would be invested in a low-risk portfolio, but workers could choose to change the defaults or opt out of the plan. Employers would not be required to make a matching contribution, but employees who participate would be eligible for the expanded Saver’s Credit.1
The purpose of the “Auto-IRA” is to increase the pension participation of all workers, but particularly low-income workers. Yet, it is unclear how many of these workers would participate. Our own research using the Survey of Income and Program Participation indicates that 60 percent of low-income workers currently eligible for voluntary 401(k) plans, similar to IRAs, choose to participate in those plans. And other research suggests that when workers are automatically enrolled in a 401(k) plan, they are even more likely to participate.2 However, these numbers are based on individuals who have a 401(k) available to them. It seems likely that these individuals may have sought out jobs offering such plans with an intention of participating. If so, workers who did not seek employment offering pensions may be less likely to participate in the IRA plan, limiting the program’s success in expanding pension participation.

This brief explores the participation issue and estimates how many workers would participate if 401(k)-type coverage were extended to those who currently lack it. The first section summarizes trends in pension coverage. The second section describes the data and methodology used for estimating participation, while the third discusses the results. The final section concludes that, while offering convenient savings options to low-income workers should help improve their retirement security, fewer individuals may take advantage of the opportunity than policymakers hope.