Small Business Retirement Plan 

Availability and Worker Participation 

by 

Kathryn Kobe 

Economic Consulting Services, LLC 

Washington, DC 20036

for 

under contract number SBA-HQ-06M0477 

Release Date: March 2010 

 

This contract was developed under a contract with the Small Business Administration, Office 

of Advocacy, and contains information and analysis that was reviewed by officials of the Office 

of Advocacy. However, the final conclusions of the report do not necessarily reflect the views 

of the Office of Advocacy. 
Small Business Retirement Plan 

Availability and Worker Participation 

by 

Kathryn Kobe 

Economic Consulting Services, LLC 

Washington, DC 20036

for 

under contract number SBA-HQ-06M0477 

Release Date: March 2010 

 

This contract was developed under a contract with the Small Business Administration, Office 

of Advocacy, and contains information and analysis that was reviewed by officials of the Office 

of Advocacy. However, the final conclusions of the report do not necessarily reflect the views 

of the Office of Advocacy. 
Table of Contents 

Executive Summary ......................................................................................................... v

Introduction ...................................................................................................................... 1

Background ................................................................................................................. 1

Savings Behavior and Confidence Levels .................................................................. 1

Basic Types of Retirement Plans Available ................................................................ 4

Section 1: Retirement Plan Coverage in the Private Sector ............................................ 5

Information from SIPP ................................................................................................ 6

Coverage and Participation of Private Sector Workers .............................................. 6

Private Sector Workers by Firm Size and Other Characteristics ................................ 7

Section 2: Participation in Retirement Plans ................................................................ 11

Distribution of Respondents by Plan Type and Firm Size ........................................ 14

Change in Plan Types 1998-2006 ............................................................................. 17

Section 3: Why Are Workers Not in Plans? ................................................................. 21

Businesses that Do Not Offer Plans .......................................................................... 21

Why Workers Do Not Participate ............................................................................. 22

Section 4: Contributions ............................................................................................... 27

Section 5: Policy Implications ...................................................................................... 29

Small Business Specific Plans .................................................................................. 29

Balancing Policy Goals ............................................................................................. 32

Possible Alternatives for Retirement Savings ........................................................... 35

Section 6: Conclusions .................................................................................................. 36

Appendix A: Data .......................................................................................................... 39

Appendix B: Additional Tables ..................................................................................... 41

Appendix C: Demographics and Characteristics of Government Workers and 

Their Access to Retirement Plans ............................................................................ 53

Bibliography .................................................................................................................. 55 

iii 

Executive Summary 

Americans will typically live almost 20 years past what has traditionally been 

considered retirement age. Yet, a variety of circumstances have made income security in those 

post-retirement years less certain. The number of companies offering the traditional defined 

benefit pension (DB) plan has been steadily declining and close to half of the workforce, about 

58 million workers, do not have access to any type of retirement plan through their place of 

work.1

 In addition, almost 20 million workers do not participate in the retirement plans that 

their employers sponsor. Nor are people saving for retirement outside of these workplace 

offerings, each year only about 5 million people make contributions to Individual Retirement 

Accounts (IRAs) and 1 million to Keogh self-employment retirement plans. This lack of 

consistent savings for use during retirement years may leave workers increasingly dependent 

on payments from the Social Security system for their post-retirement income. 

This study looks at the access and participation of workers in retirement plans offered 

by their employers. It examines those issues by firm size and finds that workers in large and 

small firms participate at very similar rates if a retirement plan is made available to them. 2

 It 

also analyzes the reasons workers do not participate even when the employer sponsors a 

retirement plan. It then discusses several of the issues that face policymakers and how those 

must be balanced to result in the best outcome. 

There are significant benefits to workers from employer-sponsored retirement plans 

when compared to individual opportunities to save for retirement. Having a system whereby 

payroll deductions can be made on a regular and automatic basis is one proposal to encourage 

people to save for retirement rather than depending solely on an individual’s savings decision 

alone. In addition, the fiduciary responsibilities of the plan sponsor mean that at least some 

minimal amount of information is provided to workers about the retirement plan and the 

savings options are not overly risky. However, sponsoring a retirement plan is voluntary for 

private businesses and many businesses, especially small businesses, do not take on the 

 

1

 These numbers are based on the findings of the 2004 SIPP survey wave conducted in 2006 and do not include 

the workers who have been separated from their business-sponsored retirement plans during the 2007/2008 

recession. 

2

 Small firms in this instance are defined to be those with less than 100 employees. 

v 
vi 

responsibilities of sponsoring a plan. That means that the largest group of workers not 

participating in retirement plans (over 40 million workers) are those that work for the majority 

of small firms who do not sponsor a retirement plan. 

 To increase retirement plan participation among small businesses requires an increase 

in the participation rate of small firms as partners in the overall retirement funding process. 

While government has made an effort to simplify retirement plans in order to encourage more 

small businesses to sponsor them, those efforts have been met with limited success and they 

come with a cost. To reduce the burden of the system on the sponsor also means that there may 

also be a reduction in some of the beneficial aspects of the system. Some of the most 

burdensome nondiscrimination rules are designed to encourage a more equal distribution of 

retirement benefits within firms. These rules help balance the ability of highly compensated 

workers who want to save the maximum allowable amount in the system with incentives to 

provide information, education and possibly incentives to encourage other non-highly 

compensated workers to participate in the plan. That helps to increase all participants’ savings. 

Another relatively large group of non-participants are the 20 million workers who do 

not participate in a retirement plan even though their employer sponsors a plan. The reasons 

that these workers give for not participating vary little between small and large firms. Many 

think they are not eligible to participate in the plans because of too few hours of work a year or 

too few years of service. Another group thinks they cannot afford to participate or do not want 

to tie the money up. Still others are simply too confused about the retirement plan options. 

Studies show that automatic enrollment in a retirement plan will increase the 

percentage of people that participate. However, this also presents a balancing of policy goals. 

Automatic enrollment for all participants is likely to increase the number of participants but 

could well decrease the amount saved by what would otherwise be the most active participants. 

Good financial education could reduce that outcome but, in turn, would put more burdens on 

the sponsors of the plans. 

Encouraging more savings for retirement by American workers is a worthwhile policy 

goal in order to increase income security among the elderly. However, the current system of 

voluntary private industry retirement plans is complex and leaves a large percentage of workers 

without access to a work-based system for retirement saving. There is no single policy action 

that will resolve these issues. 
Introduction 

Background 

The three-legged stool has been used as a metaphor for describing the methods of 

achieving financial security in retirement since the 1940s.3 It is meant to convey the 

concept that Social Security provides one basic foundation of income security for 

retirement, and pensions and individual savings/investments provide the other two “legs” 

of the stool to support individuals during their retirement years. The legally-mandated 

Social Security system is financed by employers and employees paying taxes through the 

payroll system. However, the pension system in the United States is a voluntary one. 

That gives employers a choice about whether or not to provide a retirement plan. If a 

retirement plan is provided, the employer has a fair amount of discretion over its structure 

provided the plan meets the rules of the Employment Retirement Income Security Act 

(ERISA) of 1974 or one of the special small-business- oriented retirement plans. 

 There have been many discussions about the relative strengths of the “legs” of 

the stool given an aging population, a weak U.S. savings rate and businesses that have 

increasingly stopped offering the traditional, defined benefit (DB) pension plan. Yet, at 

age 65, traditionally considered retirement age, men on average can expect to live an 

additional 17 years and women can expect to live an additional 19.7 years.4 Roughly half 

of this age group will live longer. Thus, it becomes an important policy question whether 

retirees will have enough income available to them to live comfortably and to stay out of 

poverty during the remainder of their lives. 

Savings Behavior and Confidence Levels 

More than half of the U.S. workforce does not participate in a retirement plan at 

their place of work. Almost half, 47 percent, of workers in 2006 (over 50 million) worked 

for a company that did not sponsor a retirement plan. Most of these workers are not 

 

3

 The Social Security Administration identifies the first user of the phrase as Reinhard Hohaus of the 

Metropolitan Life Insurance Company in 1949. Social Security Administration Research Note #1 of the 

Historian’s Office, Origins of the Three-Legged Stool Metaphor for Social Security.

4

 Deaths: Final Data for 2006, Table 7. National Vital Statistics Report, Volume 57, No. 14, Centers for 

Disease Control, April 2009. In reality, for workers born after 1937, the age at which a worker may claim 

full Social Security benefits is older than 65. For workers born after 1960 that age is 67. For workers born 

between 1938 and 1959, the age varies from 65 years and 2 months to 66 years and 10 months. See 

www.socialsecurity.gov. 

1
making any contributions to a dedicated retirement account. 5 ,6

 The Federal Reserve 

Board’s most recent Survey of Consumer Finances (SCF) showed that almost 53 percent 

of households had a retirement account as one of their assets in 2007, a small 

improvement from slightly less than 50 percent that reported having one in 2004.7 About 

61 percent of the households whose head of household was age 55-64 held such an 

account compared to only 30 percent of those 75 and older and 42 percent of those 

younger than 35.8 In a more detailed analysis of these 2007 SCF data for the age group 

closest to retirement, Watson Wyatt found that a third of them had no money in a 

retirement account at all.9 Another 28 percent had a year’s worth of earnings or less 

saved and another quarter reported having 3 years or less of average earnings saved. Only 

11 percent reported having 4 years of earnings saved.10 Thus, it is likely that a number of 

retirees will be increasingly dependent on the Social Security system for their well-being 

with many probably supplementing their income by working at least part time.11 

 In its 2009 Retirement Confidence Survey, the Employee Benefit Research 

Institute (EBRI) reported a record low 13 percent of workers as being very confident that 

they will have accumulated enough money to live comfortably throughout their 

retirement years, down from 27 percent of workers who felt very confident about such an 

 

5

 Individuals may make tax deferred contributions to accounts specifically set up for the purpose of 

accumulating retirement savings. These contributions can be made to an employer-sponsored plan and/or 

an individual plan although there are limits on the total amount of money that can be tax deferred. In 

addition, individuals may make contributions that are not tax deferred to certain types of retirement plans. 

6

 The IRS reported that in 2006 3.2 million tax returns (2.3 percent of the 138.4 million filed) reported a 

payment to an Individual Retirement Account (IRA) and 1.2 million tax returns (0.9 percent of the total 

filed) reported payments to a self-employed retirement (Keogh) plan. Statistics of Income Bulletin, Figure 

D, page 8. 

7

 Bucks, B., A. Kennickell, T. Mach and K. Moore. “Changes in U.S. Family Finances from 2004 to 2007: 

Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin, February 2009, pp. A2-A56. 

Table 6. 

8

 The relatively low rate for the oldest households may reflect the fact that it is the age group that had less 

opportunity to build retirement account assets during their working years since many of these options did 

not become widespread until the last 20-30 years. It may also reflect the legal requirement that individuals 

must begin taking money out of some of these accounts at age 701⁄2. Consequently, some older households 

may have already exhausted their accounts or moved that money to other types of assets. 

9

 This study focused on households with a head or spouse age 55-64 and defined a retirement account as an 

IRA or any 401(k) from a current or former job. 

10 “Retirement Prospects Dim for Many Near-Retirees,” Watson and Wyatt Worldwide, 2009. 

11 Some analysts refer to work as the “fourth leg” of the stool for income security. 

2
outcome in 2007.12 While the latter result was undoubtedly influenced by the recession 

and sharp downturn in the financial markets during 2008, it seems likely that some 

workers will need to work longer to prop up their financial security as they age. A sign of 

people working longer is already evident. One in four people between the ages of 65 and 

74 were in the labor force in 2006, up almost 4 percentage points since 2000.13 While 

this result may be related to better health in older years, this likely is also a signal of 

some unease about retirement savings as well. 

Those concerns have been exacerbated by the rapid decline in the value of stocks 

and other financial assets during late 2008 and the sharp decline in the value of many 

workers’ largest asset, their home. The Federal Reserve’s latest data on the value of the 

assets of private pension funds showed a 33 percent decline between their peak at the end 

of 2007 and March 2009. 14 While the value of some of those assets has begun to rise 

since the economy has stabilized, a further problem, brought on by the recession, is the 

freezing of pension plans by their sponsors.15 Freezing of pension plans generally means 

that all or some of the employees covered by the plan stop earning benefits from the time 

the freeze takes effect and going forward.16 Many employers who make voluntary 

contributions to their employee’s defined contribution (DC) retirement plans have also 

chosen not to do so this year. It is unclear how soon these restrictions on the plans will 

be lifted and there will be some employers who make permanent changes in the plans. 

Furthermore, since the start of the recession in December 2007 through August 2009, 

over 7 million private sector workers have lost their jobs. That too reduces the number of 

individuals with access to a retirement plan and the ability to contribute to an Individual 

Retirement Account (IRA).17

 

12 Helman, R., J. Van Derhei, C. Copeland. The 2009 Retirement Confidence Survey: Economy Drives 

Confidence to Record Lows: Many Looking to Work Longer, EBRI, Issue Brief no. 338, April 2009. 

13 New Census Bureau Data Reveal More Older Workers, Homeowners, Non-English Speakers, U.S. 

Census Bureau, U.S. Department of Commerce, September 12, 2007. 

14 Flow of Funds, Federal Reserve Board, Z.1, September 17, 2009, Table L.118. 

15 Only 607 of the Fortune 1000 offer a DB plan and of those over 30 percent have frozen their plan in 

2009. Furthermore numerous companies have stopped making employer matches to their defined 

contribution (DC) plans. See Powell, R. “Don’t freeze pension plan,” MarketWatch, July 28, 2009. 

16 Pension Rights Center. Pension Freezes, fact sheet. A DB plan’s accrued benefits cannot be reduced 

unless the Pension Benefit Guarantee Board requires it. A hard pension freeze will stop the accrual of 

future benefits for current workers, while a soft freeze prevents new participants in the plan. 

17 Individuals who are vested in a retirement plan will still have a claim on their accrued retirement assets 

even if they lose their jobs and individuals will always have a claim to the money they have contributed to 

3
With a relatively small proportion of workers actively saving for retirement and 

the American workforce getting older on average, retirement income security will 

continue to be a major policy issue for years to come. Many studies have shown that 

small businesses tend to offer fewer benefits to their employees than do large 

businesses.18 One of the benefits that small businesses are less likely to offer is a 

retirement plan. Based on the findings from Census data analyzed in this study, about 72 

percent of employees working for small firms (those with fewer than 100 employees) in 

2006, or almost 41 million workers, reported that there was no retirement plan offered 

where they work. In contrast, about 78 percent of the employees working for large firms 

(those with over 100 employees), or about 50 million workers, indicated that a retirement 

plan was available at the place where they work. This dichotomy means that resolving 

issues about retirement savings requires both a good understanding of the role businesses 

play and a better understanding of what determines workers choices about saving for 

retirement. 

Basic Types of Retirement Plans Available 

The traditional pension plan, where a worker receives a payment at regular 

intervals throughout retirement, generally based on years of service and earnings, is 

called a defined benefit (DB) plan. Funding for these plans is the responsibility of the 

employer (although sometimes the worker makes contributions) and the employer bears 

the investment risks of the pension plan over time. However, that type of plan has only 

been available to a limited number of workers and, over time, fewer and fewer companies 

have been offering DB plans. 

The other main type of pension or retirement plan that employers offer is a 

defined contribution (DC) plan. This is a plan with individual accounts for each employee 

who participates in the plan and account balances include contributions made by the 

worker, the employer, or both as well as investment returns on these contributions. 

However, the ultimate payment to the retiree depends on the account balance at 

retirement which is determined by the amount of money that is contributed to the plan 

and the investment returns those contributions generate. There is no predetermined 

payout amount at retirement and there is no guarantee of lifetime payments from the 

 

and the investment returns in their retirement plans. However, a separation from a job cuts off further 

access for making new contributions to that retirement plan and accruing investment returns. 18 GAO(2002), Popkin (2005)

4
plan.19 Furthermore, the responsibility for choosing investments for the money falls on 

the individual in a DC plan. Although employers sponsoring either a DC or a DB plan do 

have certain fiduciary responsibilities related to the investments.20

There is a type of DB plan called a cash balance plan that is something of a hybrid 

between the DB and DC plans. However, a relatively small percentage of workers 

participate in such plans. There are several types of DC plans, including some types that 

are specifically designed for small businesses. A more detailed discussion of the types of 

plans available to small businesses can be found in Section 5. 

The purpose of this study is to look at the differences in pension availability and 

coverage for workers in small and large firms. It examines which employees have 

retirement plans available to them based on the employment size of the firm in which 

they work, which of those employees participate in a retirement plan as well as why 

employees do not participate in plans that are sponsored by their employers. The study 

analyzes data collected by the Survey of Income and Program Participation (SIPP) 

conducted by the U.S. Census Bureau and examines SIPP surveys fielded during 1998, 

2003 and 2006. 

Section 1: Retirement Plan Coverage in the Private Sector 

 The introduction presented the basic types of retirement plans available in the 

U.S. This section will examine what is known about the private sector workers that are in 

three general categories of retirement plan coverage. The first category consists of 

workers who have access to a retirement plan and participate in it. The second category is 

the workers whose employers sponsor a retirement plan but the workers do not 

participate in it. Finally, there is a category of workers whose employers do not sponsor a 

 

19 Workers do sometimes annuitize all or a portion of their account balance at retirement in order to provide 

a steady income stream but that is an investment decision made by the participant. 

20 The two types of plan do have somewhat different risks associated with the likelihood that the plan assets 

will be available to the worker at retirement. The Pension Benefit Guaranty Corporation (PBGC) was 

created by the ERISA of 1974 to pay benefits (up to a limit) to participants in private DB plans in the event 

that an employer could not. It essentially provides insurance protection that retirees will have access to the 

DB benefits even if the employer is in financial distress or out of business by the time the participant 

retires. The PBGC is financed by insurance premiums set by Congress and paid by DB plan sponsors. That 

does not necessarily mean that the PBGC can pay the full benefits promised under the plan to the retiree if 

the plan sponsor is unable to do so but it generally does so up to a guaranteed amount ($4,500 per month 

for age-65 retirees of plans terminating in 2009). Workers in DC plans are less at risk because they have 

individual accounts and a legal right to vested assets in those accounts. If they leave the employer prior to 

retirement, they usually take their accumulated, vested assets with them. 

5
retirement plan. This section will compare the demographics of these three groups and 

the number of people in each group. Section 2 will more closely examine the first two 

groups, those workers whose employers sponsor a plan. Section 3 will analyze the second 

and third groups more closely when discussing why workers are not participating in 

retirement plans. 

Information from SIPP 

Data on retirement plan participation is collected through various surveys. One of 

those surveys is the Census Bureau’s Survey of Income and Program Participation 

(SIPP). The SIPP surveys ask a group of households several rounds of questions over a 

multi-year period about the household members’ job status, finances, and participation in 

various government and other types of programs. One set of questions that is asked in 

Topical Module wave 7 is about retirement income and pensions plans. These data are 

being collected from individuals, rather than the companies that they work for, and rely 

on what individuals know about their retirement plan coverage. Because the data are 

being collected from individuals, it does not always match the information collected from 

companies. 

This study will primarily focus on private industry workers 16 years and over 

including owners of businesses.21 From the SIPP survey, it is possible to identify the 

type of retirement plan or plans respondents participate in and the type of retirement 

plans that respondents’ firms sponsor but in which respondents do not participate. The 

SIPP survey asks respondents both about the size of the establishment in which they work 

and the total size of the firm for whom they work. This study has separated the 

information on workers according to the total size of the firm. The SIPP survey separates 

pension types into three kinds: 1) plans based on earnings and years on the job (DB 

plans), 2) individual account plans (DC plans) and 3) cash balance plans, legally a DB 

plan with certain attributes that are similar to both a DB plan and a DC plan. 

Coverage and Participation of Private Sector Workers 

The SIPP survey provides estimates of retirement plan coverage and participation 

for about 125 million private sector workers in 2006.22 This includes business owners 

who consider their businesses to be their primary job. Table 1 provides a general 

 

21 The demographics of government workers will also be presented in the appendix since a significant 

proportion of government workers also do not participate in the plans that the governments make available. 

22 See Appendix A for a further discussion of how this number compares to other counts of workers. 

6
overview of the number and percent of workers divided into categories of retirement plan 

participation by the size of the firm for which they work. Workers who have a retirement 

plan available to them at their place of work are considered covered while those that have 

joined a retirement plan are considered to be participants. Overall, almost 47 million 

private sector workers participated in a retirement plan in 2006, over 35 million of those 

workers worked for firms with 100 or more employees. Almost 20 million workers had 

employers that sponsored a retirement plan the worker did not participate in. Finally, 58.4 

million workers did not have access to a retirement plan through their workplace because 

the firm did not sponsor a plan. 

Table 1: Number and Percent of Private Sector Workers Participating in Retirement Plans 

by Firm Size, 2006 

Small Firms (<100 workers) Large Firms (100+ workers) All firms

Includes 

detailed 

categories 

Worker participates 

if plan sponsored 

Plan not 

sponsored 

Worker participates 

if plan sponsored 

Plan not 

sponsored 

Yes No Yes No 

Number 

(millions) 

11.1 4.9 40.8 35.5 14.8 17.6 124.7 

Percent of 

workers 

8.9 3.9 32.7 28.5 11.9 14.1 100 

Source: SIPP, Census Bureau 

Overall, about 53 percent of private sector workers had a plan available to them 

with 37 percent of the workers participating in a plan, 16 percent not participating in a 

plan sponsored by their firm and 47 percent not having a plan in which to participate.23 

If the subset of workers is restricted to private industry workers who are not business 

owners, the availability of pension plans is a bit better with 60 percent of employees 

working for an employer who sponsors a plan and 40 percent not having a plan available. 

Private Sector Workers by Firm Size and Other Characteristics 

Table 2 shows sub-groups of the private industry workers in Table 1. Each row of 

the table shows the percent of that group of workers that fits into each of the categories of 

retirement plan participation. For example line 4 separates men working in private 

industry into the three groups, 38.7 percent participated in a retirement plan in 2006, 13.7 

percent of men reported that their company sponsored a plan but they did not participate, 

and 47.6 percent reported that the firm they worked for did not sponsor a plan. 

 

23 SIPP asks employees about the size of the firm they work for and in addition asks business owners about 

the size of the business they own. The author used this information to assign both groups to the appropriate 

size of company. 

7
As was already clear from Table 1, workers in firms with fewer than 100 

employees are much less likely to have a retirement plan available to them than workers 

in firms with 100 or more employees. Almost 72 percent of workers working for small 

companies report having no plan available in the company while an additional 9 percent 

do not participate in a plan even though the company sponsors one. Only 19.5 percent of 

workers in small private sector companies report participating in a retirement plan. In 

contrast, over half of workers in companies with over 100 employees are participating in 

a retirement plan and only 26 percent of workers in the largest companies do not report 

having a plan available to them.24 An additional 22 percent do not participate in a plan 

even though the company sponsors one. 

Table 2: Distribution of Demographic Sub-Groups of Private Industry Workers by 

Status of Participation in Company Retirement Plan (Percent)—2006 

Worker Participates 

If Plan Available 

No Plan 

Available 

Yes No 

All Workers Including Owners 37.4 15.8 46.8 

Owners of a Business 7.6 1.1 91.3 

Workers Excluding Business Owners 41.7 18.0 40.3 

Males 38.7 13.7 47.6 

Females 35.7 18.4 45.8 

Married 42.7 12.2 45.1 

Single 30.7 20.4 49.0 

Less than High School Diploma 16.1 17.4 66.5 

High School Diploma 31.1 15.9 53.0 

College and/or College Diploma 41.6 16.3 42.2 

Graduate or Professional Degree 55.6 10.7 33.8 

White 37.8 15.3 46.8 

Black 34.2 19.7 46.2 

Asian 40.3 14.8 44.9 

Works 35 Hours or More 45.1 14.7 40.1 

Works for Company with Fewer than 100 Employees 19.5 8.7 71.8 

Works for Company with 100 or More Employees 52.3 21.8 25.9 

Note: Rows sum to 100 percent of each demographic group. 

Source: SIPP, Census Bureau 

 

24 The data used to develop these numbers does not provide detail on firm sizes that are larger than 100 

workers. However, earlier work using a different data set for 2002 found that for firms with multiple 

establishments there were relatively consistent rates of employees with access to retirement plans ranging 

from 69 percent in the 250-500 and 500-1000 groups to 78 percent for the 1001 to 5000 group. Large single 

establishment firms showed slightly lower rates ranging from 54 percent in the 251-500 group to 63 percent 

in the 101-250 group. See Popkin 2005. 

8
Married workers are more likely to participate than are non-married workers but 

even among married workers, a little less than half are participating in a plan. Men 

participate at a somewhat higher rate than women and a higher percentage of women do 

not participate when there is a plan available at their job. Younger workers, single 

workers, women, and workers with less than a high school diploma are less likely to 

participate in a plan than do workers who are older, married or male. Unsurprisingly, 

educated, full-time workers are the most likely to participate in a pension plan. About 56 

percent of the most educated workers participate in a plan and only about a third of those 

workers work for companies that do not offer any plan at all. Forty-five percent of fulltime workers participate in a plan. At the other end of the spectrum, over 66 percent of 

workers with less than a high school education work for firms that do not provide a 

retirement plan and about 17 percent of those least educated workers do not participate in 

a plan even if his or her company offers one. However, this relationship between 

education and retirement plan participation may be as closely related to income as 

education. Earlier studies have indicated that age, income and tenure are positively 

correlated with the probability of participating in a 401(k) plan but those studies have not 

always found education to be a significant variable, other things being equal.25

Table 3: Characteristics of Private Industry Workers in Retirement Plans and Not in 

Retirement Plans in 2006 

Worker Participates If Plan 

Available 

No Plan Available 

Yes No 

Average Age 42.6 years 35.9 years 40.1 years 

Percent Male 57.1 47.7 56.0 

Percent Married 63.9 43.4 54.0 

Percent w Less than High School 

Diploma 

3.8 9.8 12.7 

Percent with Advanced College or 

Professional Degree 

15.0 6.7 6.3 

Percent White 82.9 79.4 82.6 

Percent Black 10.6 13.9 10.5 

Percent Work > 34 Hrs. per Week 86.7 64.4 61.2 

Average Hours for Full-time workers 43.3 hours 42.3 hours 43.5 hours 

Average No. of Years at Job 9.9 years 5.3 years 7.0 years 

Percent Working for a company with 

 < 100 employees 

23.8 25.0 69.9 

Source: SIPP, Census Bureau 

 

25 Munnell, A., Sunden, A. and Taylor, C. What Determines 401(k) Participation and Contributions? 

Center for Retirement Research at Boston College, December 2000. 

9
A somewhat different way of looking at the workers who are participating in a 

retirement plan is to look at the characteristics of the workers in each of the three 

categories of participation (Table 3). The average age of those participating in a 

retirement plan is 42.6 years old compared to 35.9 years for the workers who are not 

participating but work for a firm that sponsors a plan. Participating workers also tend to 

have worked for the current firm for about twice as long as workers who are not 

participating in the plan.26 As was mentioned above, workers who are participating in a 

plan are also much more likely to work full-time. That too is not unusual, since 

participation in a retirement plan is often restricted to workers with full-time or near fulltime schedules. Workers without a plan available to them tend to fall somewhere between 

the other two groups on most characteristics except one. The workers who do not have a 

plan available are much more likely to work for small businesses. 

Table 4 examines the characteristics of a sub-group of the workers shown in 

Table 3. Table 4 shows only those workers who identified themselves as business 

owners and who identified this business as their primary job.27 

Table 4: Characteristics of Private Industry Business Owners in Retirement Plans and Not 

in Retirement Plans in 2006 

Workers Participating 

in a Plan 

No Plan Available 

Average Age 49.1 years 47.5 years 

Percent Male 72.9 63.8 

Percent Married 76.9 68.1 

Percent w Less than High School Diploma 2.0 6.4 

Percent with Advanced College or 

Professional Degree 

35.7 11.2 

Percent White 89.4 87.6 

Percent Black 6.4 6.5 

Percent Work > 34 Hrs. per Week 67.9 52.5 

Average Hours for Full-time workers 49.5 hours 48.5 hours 

Average No. of Years at Job business? 12.6 years 9.9 years 

Virtually this entire group is working in firms with less than 100 workers. 

Source: SIPP, Census Bureau 

 

26 Workers who participate in a plan also tend to have worked longer for their employer than workers who 

do not have a plan available through their employer. This supports the belief of many employers who 

sponsor retirement plans that the plans are a valued part of a benefits package and help retain workers. 

27 Only two categories are shown on this table. The group that identify themselves as being non-participants 

in a retirement plan is only about 1 percent of the total. It would be reasonable for this group to be quite 

small since the owner of the business usually has a great deal of control as to whether a retirement plan is 

offered and what type of plan will be offered. 

10
Compared to the overall group of private industry workers who do not have 

pension plans available to them, business owners tend to be somewhat older, better 

educated and have been at their jobs for a longer period of time. However, overall the 

same differences in characteristics show up in the business owners as show up in workers 

overall. The ones participating in a retirement plan tend to be older, more likely to be 

male, have worked a longer number of years at this job and are better educated. 

Section 2: Participation in Retirement Plans 

 The most complete information on the number and types of pension/retirement 

plans in the U.S. comes from the Department of Labor and the Internal Revenue Service. 

The Department of Labor’s Employee Benefits Security Administration (EBSA) tracks 

pension/retirement plans sponsored under the ERISA regulations through the plan 

sponsor’s required filing of a Form 5500. As can be seen from Table 5, this includes the 

DB plans (including the cash balance plans) and DC plans discussed above. There are 

also two basic types of simplified pension plans that do not have to meet all of the ERISA 

requirements and for that reason do not have to file a Form 5500. Those are the Savings 

Incentive Match Plan for Employees (SIMPLE) IRAs and Simplified Employee Pension 

(SEP) plans that are specifically designed for small businesses.28 These latter plans are 

tracked through IRS statistics rather than through EBSA’s statistics. Table 5 shows the 

number of plans and the total number of participants reported to the Department of Labor 

in the 2006 Form 5500 filings. The last column of the table also shows the most recent 

information the IRS has published showing counts of 2004 taxpayers reporting the 

existence of SIMPLE IRA and SEP plans as well as traditional and Roth IRAs. 

 

28 There is also a SIMPLE 401(k) plan that is restricted to small businesses, has fewer regulatory 

requirements than a standard 401(k) plan but does require a Form 5500 filing. The small business plans 

will be discussed in more detail in Section 6. 

11
Table 5: Number and Types of Sponsored Retirement Plans (2006) and Individual Retirement 

Accounts (2004) 

Private plans under ERISA regulations 

(Form 5500) (2006) 

Simplified small 

business plans and 

Individual Retirement 

Plans (2004) With 100+ 

participants 

With < 100 

participants 

Number 

of plans 

Number of 

participants 

(000s) 

Number 

of plans 

Number of 

participants 

(000s) 

Number of taxpayers 

reporting an account 

(000s) 

Defined Benefits Plans 11,368 41,682 37,212 463 

Cash balance plans 1,091 10,131 2,819 54 

Other defined benefit plans 10,276 31,551 34,393 409 

Defined Contribution Plans 70,125 68,690 575,846 11,159 

Profit-sharing& thrift savings 

plans 

65,360 62,212 531,859 10,764 

Stock bonus plans 1,229 1,926 1,851 66 

Target benefit plans 68 73 1,134 12 

Money purchase plans 2.476 3,451 22,059 253 

Annuity-403(b) (1) 130 141 14,496 16 

Custodial-403(b) (7) 17 50 2,138 1 

Other DC plans 845 837 2,310 46 

SIMPLE IRAs 2,515

SEP 3,465

Traditional and Roth IRAs 54,256

Total 81,492 110,373 613,058 11,622 

Source: DOL Private Pension Plan Bulletin 2006, (December 2008) and IRS Statistics of Income Bulletin, (Spring 2008). 

Note: Does not include ERISA plans with only one participant. Does not indicate number of individuals as each person could be a participant 

in more than one type of plan. 

In 2006, there were well over 650,000 ERISA-based private pension plans (DB 

and DC plans) reported to the Department of Labor with 120 million participants. In 

addition several million taxpayers reported having IRAs either started with their own 

contributions, with a roll-over of vested assets from a retirement plan of a prior employer 

or sponsored by their current employer.29 However, this is not an indication of the total 

 

29 In addition to the plans reported in the table, there is an uncounted number of ERISA plans with only a 

single participant that are not required to file an annual Form 5500. 

12
number of people with retirement plan coverage, some people have multiple accounts and 

some have none.30 Second, this is not a count of the number of people making 

contributions to retirement accounts. The number of active participants (those that might 

be making contributions although do not necessarily do so) in the ERISA plans is about 

70 percent of the total number of participants shown on this table.31 In addition, the 

count includes persons with multiple IRA accounts who may not be contributing to any 

of them. 

Nor does any of this information provide us with definitive counts of retirement 

plans by the size of the employer. If a retirement plan has more than 100 participants, it 

is likely that it is sponsored by a business with more than 100 employees. SEP and 

SIMPLE plans can only be sponsored by employers with 100 or fewer employees and 

therefore tend to be associated with small businesses. For the rest of the plans it is 

difficult to determine the size of the businesses from the number of participants. It might 

be a small business or it might be a large business with a retirement plan that covers a 

sub-group of employees. The ERISA plans with fewer than 100 participants have, on 

average, 19 participants per plan. The ERISA plans with 100 or more participants have, 

on average, over 1300 employees per plan. A large number of the small DB and DC 

plans (63 percent of the DB group with less than 100 participants and 39 percent of the 

similar DC group) report 2-9 participants, with an average of 4 participants. 

The DOL numbers provide some industry information for the ERISA-based plans. 

Almost 28 percent of the participants worked in services, 27 percent in manufacturing, 11 

percent in each the FIRE and retail trade sectors, 6 percent in construction, 5 percent each 

in transportation and communications and about 3 percent in wholesale trade. The 

remainder worked in agriculture, mining and other industries. 

The tables in the next section provide information about plan availability and 

participation of workers by firm size. Those are based on data from the SIPP survey 

 

30 For example, as people leave jobs with a DC retirement plan, it is not unusual for that plan to be rolled 

over into an IRA account. The Federal Reserve reported that at the end of 2008 IRA plans held assets equal 

to $3.6 trillion compared to $1.9 trillion in private DB plans and $2.7 trillion in private DC plans. But most 

of that money comes from conversion of DC plans to IRAs. Sometimes a single person will have more 

than one converted account if he or she has left more than one job with retirement assets. 

31 DOL describes an active participant as workers currently in employment covered by a plan and who are 

earning or retaining credited service under a plan. This includes workers who are eligible to elect to have 

the employer make payments to a Code section 401(k) plan. Total participants (as shown on Table 5) 

include active participants plus retired participants and participants that are separated from the company but 

have a vested amount in the plan. 

13
discussed earlier. The SIPP surveys ask respondents about the size of the firm they work 

for as well as the type of retirement plan the employer sponsors. 

However, not all respondents have a clear understanding of the type of retirement 

plan their company is sponsoring nor do they necessarily understand the type of plan in 

which they participate.32 Some workers may not understand that the offered plan is for 

the purpose of retirement savings. This confirms prior research that workers are often 

confused about the specifics of their retirement plans. This study will count as a plan 

participant anyone participating who responds that they are in a retirement-type plan 

sponsored by their employer. 

Distribution of Respondents by Plan Type and Firm Size 

 Despite detailed information, it is difficult to determine the precise percentage of 

workers that have access to each type of plan. That is because some workers are 

confused about their plans and also because some workers have access to and participate 

in more than one type of plan.33 However Table 6 provides a simplified analysis of the 

types of plans that are available to workers in firms of different sizes in 2006.34 

 Table 6 distributes all the private industry workers whose employers sponsor a

plan (about 50 million workers in large businesses and about 16 million in small 

businesses) by the type of plan the employer sponsors and whether or not the respondent 

participates in the plan. This table covers only the two categories of workers discussed in 

Section 1 whose employers sponsored a retirement plan.35 Consequently, a very larger 

percentage of workers are excluded from the calculations for this table, those whose 

 

32 A recent survey found that nearly three-quarters of workers say they have “less than a complete 

understanding of their employer’s DC plans. “Survey Finds Very Few Workers Understand Their 

Retirement Plan,” Workforce Management, September 11, 2009. 

33 About 10 percent of the workers whose firms sponsor a retirement plan report having more than one plan 

available. Large businesses are somewhat more likely than small businesses to offer more than one plan; 

about 12 percent of respondents who worked for a large employer who sponsored a plan in 2006 indicated 

they were participating in more than one plan. That compared with less than 5 percent of respondents in 

very small pension-sponsoring businesses (less than 10 employees) who participated in more than one plan. 

34 The SIPP survey allocates firms (companies) into several size groups (less than 10 employees, 10-24 

employees, 25-49 employees, 50-99 employees and 100 or more employees) but the 100 or more employee 

companies are all aggregated together. For the purposes of this study, that group will be considered large 

business and the group below 100 will be considered to be small business. 

35 The employer sponsors a plan if it is open to some of its employees. That does necessarily mean that the 

respondent is eligible to participate in the plan. Eligibility rules vary but are often tied to length of service 

or number of hours worked in a year. Employees that are eligible, in that they meet the requirements of the 

plan, then have a choice about whether or not to participate in the plan. For DB plans, the enrollment is 

usually automatic, once eligible. For DC plans, the employee most often must explicitly sign up to 

participate in the plan. 

14
employers do not sponsor a plan (about 17 million workers in large firms and almost 41 

million workers in small firms). 

Table 6: Distribution of Workers in Private Industry Whose Employers Sponsor a 

Retirement Plan by Firm Size, 2006 (Percent) 

Firm employment size 

< 100 100+ All 

firms 

Defined Benefit (DB) Plans 

 Respondent’s only or most important plan is a DB plan 19.2 27.4 25.4 

Respondent does not participate in the employer’s DB plan.* 5.8 4.2 4.6 

Defined Contribution (DC) Plans

 Respondent’s only or most important plan is a DC plan 50.2 44.9 46.5 

Respondent does not participate in the employer’s DC plan 25.0 25.3 25.2 

Cash Balance Plans 

 Respondent’s only or most important plan is a cash balance plan 4.8 5.4 5.3 

*The respondents indicate they do not participate in a plan and the plan available is not a 401(k)-type; it is 

assumed that it is a DB plan. 

Note: The total adds to more than 100 because some respondents indicate participation in multiple plans. 

Source: SIPP, Census Bureau

For example, from the last column on Table 6 one can see that of those workers 

whose employers sponsor retirement plans, 30 percent work for an employer than 

sponsors a DB plan. (This includes the 25.4 percent of the workers participating in a DB 

plan plus the 4.6 percent of workers who are not participating in a DB plan their 

employer sponsors.) Over 71 percent of workers whose employers sponsor a plan work 

for employers who sponsor a DC plan (the 46.5 percent who are participating in a DC 

plan plus the 25.2 percent whose employers sponsor a DC plan but the respondents do not 

participate in it). About 5 percent of workers participate in the cash balance plans. These 

percentages total to more than 100 percent because some workers are participating in 

more than one plan and therefore are in more than one of these categories. 

The first column of Table 6 shows the similar distributions for all the small 

business workers whose employers sponsor plans and the second column shows the 

distributions for all the large business workers whose employers sponsor plans. Defined 

benefit plans are sponsored by large businesses more often than small businesses with 

almost 32 percent of workers in large businesses reporting the availability of a DB plan 

compared to 25 percent of the workers in small businesses. About 27 percent of the 

workers in firms with 100 or more employees are participating in a DB plan compared to 

about 19 percent of workers in the small companies. Four to six percent of workers in 

15
both firm size groups report they do not participate in a DB plan even though one is 

offered by their employer.36

 Defined contribution (DC) plans are the type of plan most often reported by both 

groups. About 75 percent of small business workers and 70 percent of large business 

workers report their firms sponsor such a plan. The percentage of workers not 

participating in a DC plan is very consistent across firm size groups, about a quarter of 

each group. Half of the small business workers with a plan available report participating 

in a DC plan compared to about 45 percent of similarly situated large business workers. 

 Looking at the more detailed breakdown of information for firm sizes within the 

“<100 employee” group (see Table B.1 in Appendix B), one finds somewhat less 

consistency than in the aggregated group. A much higher percentage of workers in the 

smallest firm size groups (less than 10 employees and 10-24 employees) are participating 

in the DC plans sponsored by their employer, 57 and 51 percent, than is true for the 50-99 

employee group at 47 percent. This may reflect the employer’s ability to keep a 

relatively small group of employees better informed about the retirement plan or it may 

reflect more effort on the part of the employer to keep employees participating in order to 

meet the regulatory requirements of the plans such as meeting the anti-discrimination 

requirements. 

Table 7 provides the same information as in Table 6 but provides it in much more 

detail. This table provides a better understanding of how employees perceive the 

retirement (or savings) plans sponsored by their employers. It also shows in more detail 

how complicated retirement systems may be. A small percentage of workers have more 

than one plan available to them and participate in more than one plan. Clearly there is 

some level of confusion about the DC plans. About 12 percent of each firm-size group 

does not recognize the employer sponsored 401(k)-type plan as a pension or retirement 

plan despite the fact that most of those employees participate in that plan. This points to 

the importance of providing better information about all retirement plans to potential plan 

participants. (More detailed tables for other firm size groups are shown in Appendix B.) 

Table 7: Distribution of Private Industry Workers Whose Employers Sponsor a Retirement 

Plan by Firm Size, 2006 (Percent) 

Firm employment size 

 

36 While we do not know for certain why workers would not participate in a DB plan, the most likely 

explanation is that they are not eligible yet. 

16
<100 100+ All firms

Defined Benefit (DB) Plans

 Respondent participates in a single plan and it is a DB plan 16.6 21.6 20.4 

 Respondent participates in more than one plan and the most 

important is a DB plan 2.6 5.8 5.0 

 Respondent participates in more than one plan and the second most 

important is a DB plan 1.3 4.7 3.9 

Respondent does not participate in any plan but the employer 

sponsors a DB plan.* 5.8 4.2 4.6 

Defined Contribution (DC) Plans

 Respondent participates in a single plan and it is a DC plan 38.5 29.5 31.7 

 Respondent participates in more than one plan and the most 

important is a DC plan 

1.8 4.7 4.0 

 Respondent participates in more than one plan and second most 

important is a DC plan 

3.5 5.9 5.3 

Respondent does not participate in any plan but the employer 

sponsors a DC plan. 

22.3 22.9 22.7 

DC/401(k)-Type Plans that the Employer Sponsors but the Respondent does Not Identify as a 

Retirement Plan 

 Respondent identifies participation in a retirement plan but 

acknowledges also participating in an additional DC plan 

6.1 7.2 6.9 

 Respondent participates in employer’s DC plan but does not 

recognize it as a retirement plan 

5.0 3.5 3.9 

Respondent does not participate in a retirement plan because none is 

available but also identifies a 401(k)-type plan sponsored by the 

employer 

2.7 2.4 2.5 

Cash Balance Plans 

 Respondent participates in one plan and it is a cash balance plan. 4.3 4.4 4.3 

 Respondent participates in more than one plan and the most 

important is a cash balance plan. 

0.5 1.0 0.9 

 Respondent participates in more than one plan and second most 

important plan is a cash balance plan. 

0.2 0.9 0.7 

*Respondents indicate that the plan they do not participate in is not a 401(k) type of plan; plan assumed to be a DB plan. 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one plan. 

Source: SIPP, Census Bureau

Change in Plan Types 1998-2006 

Table 8 again focuses on the distribution of respondents in all business sizes who 

reported that their employer sponsors a plan. However, in this table, the plan types are 

compared over the three time periods covered by the SIPP surveys used in this project. 

The first survey collected pension information for the year 1998 and the last one collected 

pension information for 2006, eight years later. 

17
Table 8: Distribution of Retirement Plan Participation of Private Industry Workers by Plan 

Type for Workers Whose Employers Sponsor a Retirement Plan-All Firms, 1998, 2003, 

2006 (Percent) 

All firms 

1998 2003 2006

Defined Benefit (DB) Plans (includes cash balance in 1998) 

 Respondent participates in a DB plan as only or most important plan 34.4 28.5 25.4 

Respondent does not participate in any plan but the employer 

sponsors a DB plan* 6.9 6.7 4.6 

Defined Contribution (DC) Plans

 Respondent participates in a DC plan as only or most important plan 39.6 43.2 46.5 

Respondent does not participate in any plan but the employer 

sponsors a DC plan 

24.0 21.2 25.2 

Cash Balance Plans 

 Respondent participates in a cash balance plan as only or most 

important plan 

NA 4.9 5.3 

*The respondents indicate that the plan they do not participate in is not a 401(k) type plan; it is assumed that these are 

DB plans. 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one plan. 

Source: SIPP, Census Bureau

The trend between 1998 and 2006 shows the shift in the types of pension plans 

favored by plan sponsors. Table 8 shows the trend for all business sizes. There has been 

a decline in the DB plans and an increase in the DC plans. The trend is not as clear as it 

could be because, in 1998, the SIPP survey did not provide cash balance plans as an 

option to the survey participants and the cash balance plans were included in DB plan 

totals.37 However, even if the cash benefit plans were 4-5 percent of the total in 1998, 

the DB plans would still have been offered by the employers of 37 percent of the surv

participants compared with only 30 percent in 2006. During the same period, the DC 

plans have grown in importance. In 2006, they were offered by the employers of almost 

72 percent of the respondents compared with 64 percent in 1998. Overall participation 

rates have not changed much over this time period. Adding the non-participants in DC 

plans to the non-participants in DB plans one finds that just fewer than 30 percent of the 

survey respondents were not participating in any plan in 2006 compared to just over 30 

percent in 1998. 

ey 

 

37 While cash balance pension plans are a hybrid, they are legally DB plans and that is how the Department 

of Labor statistics show them. 

18
Table 9: Distribution of Retirement Plan Participation of Private Industry Workers by Plan 

Type for Workers Whose Employers Sponsor a Retirement Plan, Large Firms, 1998, 2003, 

2006 (Percent) 

Firms with 100+ 

employees 

1998 2003 2006 

Defined Benefit (DB) Plans (includes cash balance in 1998)

 Respondent participates in a DB plan as only or most important 

plan 

35.9 30.1 27.4 

Respondent does not participate in any plan but the employer 

sponsors a DB plan* 

6.7 6.5 4.2 

Defined Contribution (DC) Plans

 Respondent participates in a DC plan as only or most important 

plan 

38.9 42.0 44.9 

Respondent does not participate in any plan but employer 

sponsors a DC plan 

24.1 21.5 25.3 

Cash Balance Plans 

 Respondent participates in a cash balance plan as only or most 

important plan 

NA 4.6 5.4 

*The respondents indicate that the plan they do not participate in is not a 401(k) type of plan; it is assumed that these 

are DB plans. 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one plan. 

Source: SIPP, Census Bureau

Table 9 looks at the trend for large firms. It looks similar to the overall trend, 

with DB plans shrinking as a share of the total and DC plans growing as a share of the 

total. Overall, a somewhat higher percentage of workers in large firms have a DB plan 

as compared to the group overall but that share has also been declining over time. 

 Table 10 shows the distribution of respondents working for small firms (less than 

100 employees) who reported that their employer sponsored a retirement plan. Here the 

pattern is quite clear. In 1998, almost 37 percent of respondents who reported that their 

employer was sponsoring a retirement plan identified it as a DB plan. By 2006, that 

number had declined to 25 percent. Also, the percent of respondents who reported 

participating in a small business DB plan declined by 10 percentage points, down from 

29 percent to 19 percent. Even if 5 percent of the plans in 1998 were cash balance plans, 

the decline would still have been 5 percentage points. Comparing the 1998 results in 

Tables 9 and 10 one sees that even in 1998 large firms were more likely to offer DB plans 

than were small firms and the share of firms offering DB plans seems to have fallen faster 

in small firms than in large firms, even after correcting for cash balance plans. 

19
Table 10: Distribution of Retirement Plan Participation of Private Industry Workers by 

Plan Type for Workers Whose Employers Sponsor a Retirement Plan-Small Firms, 1998, 

2003, 2006 (Percent) 

Firms with <100 

employees 

1998 2003 2006 

Defined Benefit (DB) Plans (includes cash balance in 1998)

 Respondent participates in a DB plan as only or most important 

plan 29.1 23.4 19.1 

Respondent does not participate in any plan but the employer 

sponsors a DB plan.* 7.5 7.1 5.8 

Defined Contribution (DC) Plans

 Respondent participates in a DC plan as only or most important 

plan 

41.0 46.6 50.2 

Respondent does not participate in the plan but it is a defined 

contribution plan 

23.8 20.1 25.0 

Cash Balance Plans 

 Respondent participates in a cash balance plan as only or most 

important plan 

NA 5.9 4.8 

*The respondents indicate that the plan they do not participate in is not a 401(k) type of plan; it is assumed that most of 

those are defined benefit types of plans but some percentage of them could also be cash balance plans. The data do not 

allow those to be identified. 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one plan. 

Source: SIPP, Census Bureau

The share of respondents reporting their employer sponsors a DC plan was about 

65 percent in 1998, a little higher than the 63 percent of the large business workers that 

reported such a plan (roughly the same percentage of both firm-size groups showed about 

24 percent of workers not participating in the DC plans.) By 2006, 75 percent of the small 

business respondents whose employers sponsored a plan indicated that it was a DC plan. 

That compares with 70 percent of the large business workers. 

 In summary, if an employer is going to sponsor a retirement plan, it is 

increasingly likely that the plan will be a DC plan regardless of firm size. About a 

quarter of the respondents whose employers offer DC plans do not participate in them, 

that too varies little by firm size. Large firms are still more likely to offer a DB plan than 

is a small firm but the share of large firms offering such a plan is declining over time. 

 These tables have looked at the different kinds of retirement plans available and 

the type of plan a worker is most likely to be participating in if his or her employer offers 

such a plan. However, the next section will focus on the workers who are not participants 

in a retirement plan. 

20
Section 3: Why Are Workers Not in Plans? 

Businesses that Do Not Offer Plans 

 In considering policy changes that might increase the number of people who 

participate in pension plans, it is important to know why workers do not participate. 

Table 1 shows that the majority of workers do not participate in a plan because they do 

not have a choice about it; there is no plan available through their jobs.38 To increase the 

number of workers that are offered plans through their businesses, policy measures need 

to consider how to make pension plans more attractive to businesses and less 

burdensome. 

 There are few studies on why companies do not offer pension plans.39 However, 

from the information available the major reasons are: the cost of the plans, the regulatory 

burdens of the plans, the fiduciary responsibilities required of the plan sponsors and a 

general lack of employer education about the requirements and processes of setting up 

and sponsoring a plan.40 These types of hurdles are more difficult for small employers 

to overcome than they are for large employers. Small employers are less likely and les

able to assign a staff person to “handle” retirement-plan related issues than are large 

businesses. However, a recent survey by Charles Schwab and CFO Research of senior 

finance executives in large companies show that companies do see positive aspects to 

having a retirement plan. In large firms at least, the availability of a retirement plan is an 

important recruiting tool. Eighty-four percent of the surveys respondents saw it as 

“necessary for attracting and recruiting a high quality workforce.”

s 

 

41 New plan sponsors 

in a 2003 EBRI survey of small firms also cited that as the main reason that they began 

sponsoring a retirement plan. 

38 There is something of a discrepancy between this statistic and the Bureau of Labor Statistics’ latest 

benefits analysis which shows that 67 percent of private sector employees have a pension plan available to 

them. This may be a difference in the time period, these data were collected in 2006 and the BLS numbers 

in 2009 but it may also reflect that some workers remain unaware of retirement plans available to them 

through their jobs. These data are asked of workers, the BLS statistics were collected from businesses and 

ask about their employees. Employee Benefits in the United States, March 2009, July 28, 2009. 

39 For several years, EBRI collected survey information on the reasons that small businesses did not have 

retirement plans but those were discontinued after 2003. 

40 The most often cited reason in the EBRI survey was business concerns such as uncertainty of revenues 

and newness of the business. See Munnell and Perun (2006) [not in Bibliograhy] Figure 6. A Lewin/ICF 

study had similar findings see GAO (July 1992) Table III.1. 

41 Owens, D. “A Shared Benefit: Employer Views on the Value of 401(k) Plans,” Defined Contributions 

Insight, January-February 2009. 

21
 The cost of setting up and running a retirement plan is not only related to the 

number of active participants (for whom a business would make contributions depending 

on the formula of the plan) but also the costs associated with the administration of the 

plan. The Department of Labor reported that DB plans with 100 or more participants 

spent $9.2 billion on administrative expenses in 2006 (or about $220 per participant) and 

DC plans with 100 or more participants spent $2.2 billion (or about $33 per participant). 

These administrative expenses included professional fees, contract administration fees, 

investment advisory and management fees and other administrative expenses. While the 

DOL does not provide similar statistics for plans with fewer than 100 employees, earlier 

analysis of the 5500 forms (Popkin, 2005) showed that there tended to be a floor on 

administrative expenses for such plans below which a reduction in the size of the plan did 

not reduce the expenses. Consequently, firms with few participants were often paying 

several times more per employee than were the large retirement plan sponsors, for the 

smallest firms it could be several hundred dollars per employee even for a DC plan. 

Why Workers Do Not Participate 

However, even among workers whose employers do sponsor a retirement plan, 

there is a significant percentage of workers who do not participate. While it is necessary 

to apply educated guesses about some of the reasons that employers do not sponsor 

retirement plans, it is easier to determine why workers do not participate in them. The 

SIPP survey asks them to provide their reasons. 

 The SIPP survey from which these statistics are drawn asks if a person’s 

employer offers a pension or retirement plan and if that person responds “yes” then it 

asks if the respondent participates in such a plan. If the answer to that question is “no” 

then the person is provided with a list of reasons and asked to select the ones that best 

describe his or her reasons for not participating. 

The questioning process is a bit more complicated than this suggests. As was 

discussed earlier, there are a number of respondents who are confused about their plans, 

especially DC plans. Consequently, if a respondent indicates that the employer does not 

sponsor a plan then he or she is asked again if the employer offers a 401(k)-type plan. As 

can be seen on Table 7, several respondents will answer “no” to the first question and 

“yes” to the second. This means that there may be two different sets of responses to the 

“why do you not participate” question. The first expresses the reasons of the larger but 

less well defined set of retirement plans (that respondents clearly understand are 

retirement plans) and the second set applies to a much smaller group whose available 

plan is clearly defined as a DC plan (but the respondent does not recognize it as a 

22
retirement plan.) The two sets of responses are quite different. Since it is difficult to add 

these two sets of answers together, they are shown separately on the following tables. 

Table 11 present the reasons for not participating in the company’s retirement 

plan for workers in large and small firms separately. (Appendix Tables B-9 and B-10 

provide combined statistics for all firms.) The reasons are relatively consistent across 

firm size classes. 

Table 11: Reasons for Not Participating in a Company’s Retirement Plan Small and Large 

Firms - 2006 (Percent) 

Reason for not participating in the retirement plan Employment Size 

<100 100+ 

No one in my type of job is allowed in the plan 7.7 10.5 

Don’t work enough hours, weeks, months per year 23.0 24.7 

Haven’t worked long enough for this employer 27.8 25.4 

Started job too close to retirement date 0.7 0.5 

Too young to participate 1.9 2.1 

Can’t afford to contribute 17.1 17.3 

Don’t want to tie up money 6.9 9.4 

Employer doesn’t contribute or does not contribute enough 2.5 2.0 

Don’t plan to be on the job long enough 1.7 2.0 

Don’t need it 2.2 1.1 

Have an IRA or other pension plan coverage 1.8 1.8 

Spouse has a pension plan 1.5 1.0 

Haven’t thought about it 4.2 6.0 

Other reason 15.3 10.8 

Total may exceed 100 as more than one response is allowed 

Source: SIPP, Census Bureau 

The two most cited reasons are “not having worked long enough for the employer,” cited 

by over a quarter of both groups, and “not having enough hours or weeks of work per 

year,” also cited by about a quarter of the respondents. Retirement plans often do restrict 

access to the plan to participants who have worked for the company for a specific period 

of time; this is somewhat more common among DB plans than it is among DC plans but 

it is often true for both types.42 Since the BLS data (2009) indicate a larger percentage of 

 

42 Using a different data set (and a definition of small business that was based on having fewer than 500 

employees), it was found that only 9 percent of workers in small businesses and 43 percent of workers in 

large businesses reported participating in a pension plan if they had worked for 9 months or less with their 

current employer. Whereas for employees that had worked longer than 9 months, the percent participating 

in pension plans rose to 36 percent and 78 percent, respectively. (See Popkin 2005, Table 8B). 

23
workers qualify for a retirement plan than do these data, this may indicate confusion 

about whether eligibility criteria have been met. Since respondents can cite more than one 

reason there may be some overlap between the people who responded affirmatively to 

each question. 

The third most common reason, cited by 17 percent of each group, is that the 

respondent cannot afford to contribute to the plan. About 8-10 percent of the workers in 

each firm-size grouping indicate that they belong to a group of employees that is 

excluded from the plan, perhaps in a certain job type. Seven to 9 percent of workers do 

not want to tie their money up in a retirement plan and a relatively large 11-15 percent 

indicates having some other reason for not participating. 

 Table 11 asks the question, “why do you not participate in the retirement plan,” to 

all those respondents who indicate that there is a retirement plan sponsored by their 

employer but who are not participating in it. Consequently, it reflects a mixture of 

responses from people whose employers may provide a DB or a DC plan. Table 12 asks 

the same set of questions to the respondents who are asked specifically about the 

availability of a 401(k)-type plan after they have indicated that no retirement plan is 

offered. The distribution of responses are quite different than the ones shown in Table 11 

and show more differences between the workers in the small and large firms than did the 

first set.43

 The most commonly cited reason, by both firm size groups is that the person 

“can’t afford to contribute.” The next two most commonly cited reasons for small 

businesses are the tenure and work hour restrictions that were frequently cited in Table 

11. However, for the large business group, “don’t want to tie the money up” is the third 

most important reason with 13 percent of the respondents, and 9 percent of workers in 

large firms indicating they “haven’t thought about it.” There continues to be a relatively 

large group with some other reason for not participating. 

In comparing the responses of workers in small firms for the period from 1998 

through 2006 in Table 13, there is quite a bit of consistency in the responses. (Similar 

tables for other firm sizes are shown in Appendix B.) But, the share of respondents citing 

the first three reasons: their group of employees is not eligible, they do not have enough 

tenure or enough hours to participate, has fallen somewhat since 1998. This may reflect a 

combination of a change in the mix of plans toward less restrictive ones (such as from a 

DB to a DC plan) or a better understanding of the plan rules by the workers. Some 

 

43 This may partly reflect the smaller sample sizes in this group since fewer people are asked this question. 

24
people may have responded to more than one of the reasons so the percentages in these 

tables are not additive. However, there could be as many as half of the non-participants 

who believe they are not eligible to participate. 

Table 12: Reasons for Not Participating in Firm’s 401(k)-Type Plan by Firm Size (Private 

Industry-2006) (Percent) 

Reason for not participating in the retirement plan Employment Size 

<100 100+ 

No one in my type of job is allowed in the plan 11.6 7.6 

Don’t work enough hours, weeks, months per year 20.0 11.5 

Haven’t worked long enough for this employer 18.0 16.3 

Started job too close to retirement date 0.0 0.8 

Too young to participate 0.0 0.4 

Can’t afford to contribute 20.7 26.5 

Don’t want to tie up money 11.8 12.9 

Employer doesn’t contribute or does not contribute enough 3.9 4.2 

Don’t plan to be on the job long enough 3.3 1.8 

Don’t need it 2.6 4.7 

Have an IRA or other pension plan coverage 4.9 3.8 

Spouse has a pension plan 1.8 0.7 

Haven’t thought about it 3.9 8.5 

Other reason 15.9 13.6 

Total may exceed 100 as more than one response is allowed 

Source: SIPP, Census Bureau 

Table 13 : Reasons for Not Participating in Company’s Retirement Plan (Small Private 

Firms, <100 employees) 1998, 2003, 2006 (Percent)

Reason for not participating in the retirement plan 1998 2003 2006 

No one in my type of job is allowed in the plan 11.8 7.9 7.7 

Don’t work enough hours, weeks, months per year 25.5 28.9 23.0 

Haven’t worked long enough for this employer 37.8 34.4 27.8 

Started job too close to retirement date 0.5 1.3 0.7 

Too young to participate 2.5 3.8 1.9 

Can’t afford to contribute 12.6 14.4 17.1 

Don’t want to tie up money 8.4 9.4 6.9 

Employer doesn’t contribute or does not contribute enough 2.4 2.2 2.5 

Don’t plan to be on the job long enough 4.3 2.2 1.7 

Don’t need it 1.9 1.5 2.2 

Have an IRA or other pension plan coverage 2.3 2.6 1.8 

Spouse has a pension plan 3.3 2.1 1.5 

Haven’t thought about it 5.8 3.6 4.2 

Other reason 10.4 12.3 15.3 

Total may exceed 100 as more than one response is allowed. 

25
Source: SIPP, Census Bureau 

For those that are making a choice not to participate in 2006, the most cited 

reason was an “inability to afford a contribution,” about 17 percent of the respondents 

indicated that as a reason compared to 13 percent in 1998. Almost 7 percent of 

respondents “did not want to tie the money up” in 2006, about the same as the 8 percent 

who cited that reason in 1998. The percent who “haven’t thought about it” declined from 

6 percent in 1998 to 4 percent in 2006 but those citing “other reasons” increased from 10 

percent to 15 percent. 

 

Table 14: Reasons for Not Participating in Firm’s 401(k)-Type Plan (Small Private Firms, 

<100 Employees) 1998, 2003, 2006 (Percent) 

Reason for not participating in the pension plan 1998 2003 2006 

No one in my type of job is allowed in the plan 7.4 8.6 11.6 

Don’t work enough hours, weeks, months per year 19.2 18.6 20.0 

Haven’t worked long enough for this employer 18.7 24.1 18.0 

Started job too close to retirement date 0.0 1.3 0.0 

Too young to participate 0.7 0.7 0.0 

Can’t afford to contribute 18.8 16.9 20.7 

Don’t want to tie up money 12.6 15.8 11.8 

Employer doesn’t contribute or does not contribute enough 3.6 2.6 3.9 

Don’t plan to be on the job long enough 1.4 0.6 3.3 

Don’t need it 5.3 3.1 2.6 

Have an IRA or other pension plan coverage 3.4 6.1 4.9 

Spouse has a pension plan 2.6 3.0 1.8 

Haven’t thought about it 5.0 7.6 3.9 

Other reason 18.4 9.8 15.9 

Total may exceed 100 as more than one response is allowed. 

Source: SIPP, Census Bureau 

 The people who report their employers sponsor a 401(k)-type plan (Table 14) 

show a much smaller percentage citing the second and third reasons for not participating 

in the plan (tenure and hours restrictions) than those responding to the more general 

retirement plan question. But those have remained relatively constant; the percentage 

citing not enough tenure is about 10 percentage points lower in the 401(k)-type group 

than in the group answering the general retirement plan question. While 401(k) plans 

tend to be somewhat more flexible about participants than are the more traditional DB 

plans and that may be influencing the size of this difference. The percentage citing too 

few hours as their reason is somewhat smaller in the 401(k)-type group but not a lot 

26
smaller indicating that part-time workers may still be restricted from the plans. 

However, the percentage of people who cite “can’t afford to contribute” and the 

percentage that “don’t want to tie the money up” are both several percentage points 

higher among the 401(k)-type group than among the more general retirement plan group 

reported in Table 13. Again, since the DB plans do not require an employee to make a 

contribution, the inclusion of DB plans in Table 13 is likely to reduce the percentage of 

people responding with that answer. 

 Between 2 and 4 percent of the respondents in Tables 13 and 14 cited “employer 

does not contribute enough” as the reason for not participating in the sponsored 

retirement plan. This relatively small number indicates that is not a major deciding factor 

for most of the people who choose not to participate. This is in line with the Engelhardt 

and Kumar study which found a relatively low elasticity of participation with respect to 

employer matching.44 Given that the recent downturn in the economy has caused a large 

number of both large and small firms to either freeze their retirement plans or suspend or 

reduce matching contributions to their 401(k) plans, this helps assess how likely it is that 

people will use that as a reason to not participate in the plan in the future.45 Interestingly, 

95 percent of the executives responding to the Schwab/CFO Research survey indicated 

that the company’s matching contributions were an important feature of the retirement 

plan. While a company’ contributions are an important method of sharing the success of 

the company with its workers, building retirement assets and possibly increasing the 

amount of money that participants choose to contribute it may not be the most important 

factor in determining whether or not a worker chooses to participate in the plan . 

Section 4: Contributions 

 The Federal Reserve Board’s 2007 Survey of Consumer Finances found that the 

median value of assets in retirement accounts was $45,000 for the 52 percent of the 

household that had assets in retirement accounts.46 That was up from the median value in 

2004 of $38,700 (both values measured in 2007 dollars). The distribution of these assets 

varied widely by income levels with those in the lowest 20th percentile of income having 

 

44 Englelhardt, G. and Kumar, A. Employer Matching and 401(k) Participation: Evidence from Health and 

Retirement Study, Research Department Working Paper 0601, Federal Reserve Bank of Dallas, 2006. 

45 “Some Firms Suspend Their 401(k) Match,” Wall Street Journal, November 12, 2008. 

46 Retirement accounts in this instance cover defined contribution plans that are from a current or former 

job and IRA holdings. 

27
a median value of $6,500 in 2007 and those in the top 90th percentile and above having 

over $200,000. Households nearest retirement had a median amount of $98,000 while 

those age 75 or older had about $35,000. The median amount for the age group less than 

35 years old was about $10,000. However, that was one of only two age groups that 

showed a decline in the median between 2004 and 2007 with the median amount 

dropping by over $2,000 (measured in 2007 dollars).47 This might indicate that the 

youngest group is finding retirement savings less of a priority but that is somewhat 

contradicted by the slight growth in the percentage of this group that has a retirement 

account. It may indicate that this age group is also be investing in other things, e.g., 

house, education. Another possible explanation is that people with smaller incomes are 

starting accounts but have less money to contribute to them. 

 Based on the SIPP data, less than half of the private sector workers participating 

in a single pension plan through their employer in 2006 were making personal 

contributions to that plan. That is not too surprising for a DB plan since only a small 

percentage of private sector DB plans require an employee contribution although many 

allow contributions. For participants in DC plans about 47 percent reported making 

contributions in 2006. The share of workers that were making contributions was 

remarkably consistent across firm sizes. About 48 percent of workers in large businesses 

and 46 percent of workers in small businesses reported making contributions to the DC 

plan in which they were participating. 

 For those workers that reported making contributions, the size of the contribution 

is not much different between the workers in large firms and the workers in small firms. 

In 2006, about 49 percent of large firm contributors and 57 percent of small business 

contributors to DC plans reported their contributions in dollar terms. Workers in large 

firms put an average of $4,331 per year into their DC plans and workers in small firms 

put an average of $4,474 in their DC plans, virtually identical amounts. For the workers 

who reported their contributions in terms of a percent of their wages, the results were also 

very similar with large firm workers reporting an average contribution of 5.97 percent in 

2006 and small firm workers reporting an average contribution of 5.63 percent in 2006. 

 Virtually all the respondents indicated they would receive some benefits from the 

fund indicating that respondents either know or think they will be vested in the plan.48 

 

47 The other decline was in the group aged 65 to 74 where the median amount in the retirement accounts 

declined by over $10,000. However, there is some indication that this reflects a redistribution of the assets 

out of retirement accounts rather than a loss of that level of assets. 

48 Plan participants are always entitled to the money they personally have contributed to the plan. 

28
About 81 percent of small business respondents with DC plans and 79 percent of large 

business respondents with DC plans indicated they would get a lump sum payment if they 

left their jobs. The percent was smaller for DB plans, 57 percent among large business 

respondents and 59 percent among small business respondent. But DB plans often have 

longer vesting schedules than do DC plans. 

 For the workers who reported an estimated balance in their DC retirement 

account, the amount reported was quite similar between the two firm size groups as well. 

Workers in large businesses reported an average balance of $36,662 in their accounts in 

2006 and workers in small businesses reported an average balance of $32,058. 

Section 5: Policy Implications 

 Based on the findings of this study if workers are offered access to a retirement 

plan by their employer, their behavior is very similar regardless of whether they work for 

a large firm or a small one. Both sets of workers participate at about the same rate (70-75 

percent), and both sets of workers make similar size contributions to DC plans if they 

choose to contribute. This indicates that if all employers offered plans to their employees 

the participation rate in retirement plans would increase markedly. 

 These findings raise three issues for policy makers to consider. First, what are the 

best ways of getting small businesses to sponsor a retirement plan? Second, how can the 

minority of workers that do not participate in plans sponsored by their employers be 

included? Third, how can workers enrolled in a plan be encouraged to make 

contributions toward their retirement savings? 

Small Business Specific Plans 

Policy makers have put in place some methods to help small businesses to 

overcome some of the obstacles to sponsoring retirement plans. H.R. 10 plans, often 

referred to as Keogh plans for self-employed workers, have been available to sole 

proprietorships and partnerships since 1962. There are both DC and DB versions of these 

plans. However, newer types of retirement plans, all DC plans, have been developed 

especially for small businesses. Those are simpler to set up than the traditional Keogh 

plan, have fewer reporting requirements than the standard retirement plans, and are 

handled like IRAs. The first is the employer-sponsored Simplified Employee Pension 

IRAs (SEP-IRAs), introduced in the Revenue Act of 1978. These accounts allow 

employers to make contributions for their employees’ retirements. In 2009 an employer 

could contribute up to 25 percent of an employee’s compensation, up to a maximum of 

29
$49,000. While employers do not have to contribute every year, if they do contribute they 

must do so according to a written formula and contributions must be made for every 

participant who worked during the year.49 The SEP plans do not allow employees to 

make contributions to the plans. 50 However, the second type of plan developed for 

small businesses is the Savings Incentive Match Plans for Employees (SIMPLE IRAs), 

introduced in the Small Business Job Protection Act of 1996 and it does allow employee 

contributions. These plans can be set up by firms with 100 or fewer employees who 

receive $5,000 or more in compensation from the employer in the preceding year; all 

employees working during any part of the year must be considered when doing this 

count. In order to maintain the plan the firm must meet this 100-employee limit during 

each succeeding year. Under the SIMPLE IRA plan, there is an employee-determined 

“salary reduction contribution” and employers must make either matching contributions 

or non-elective contributions. 

Unfortunately, despite the fact these plans have now been available for many 

years, they seem to have produced only a modest up-tick in the number of plans 

sponsored.51 In 2004, the most recent year for which the data are available, there were 

1.57 million taxpayers reporting $13.8 billion to SEP-IRAs (a contribution amount 

second only to Roth IRA contributions in that year). Contributions to SIMPLE IRA 

plans were reported by 1.94 million taxpayers reporting a total of $7.6 billion to the 

plans. However, the number of taxpayers reporting contributions to SEP-IRAs has 

declined. In 2000, 1.74 million taxpayers reported contributions of $10.1 billion, in 2001 

that number had increased to 1.79 million but by 2004 the number was down to 1.57 

million. At the end of 2002, 3.46 million taxpayers reported having a SEP-IRA account 

only a modest increase from the 3.31 million accounts in 2000. This may reflect a change 

in the tax laws in 2002. The SIMPLE IRA accounts have grown more (and may reflect a 

change of plan from SEP to SIMPLE IRA after the tax laws changed in 2002.) In 2000 

 

49 Eligible employees are those that are 21 or older, have worked for the company for 3 of the last 5 years 

and have received at least $550 (in 2009) in compensation from the employer. 

50 A Salary Reduction Simplified Employee Pension (SARSEP) was a SEP set up before 1997 that includes 

a salary reduction arrangement, similar to that of the SIMPLE plan. New SARSEP plans were not allowed 

after 1996 although existing plans could continue and any new employees of an employer sponsoring such 

a plan could join providing the other rules were met. SARSEP accounts are counted as SEPs in the IRS 

statistics. 

51 It is difficult to determine exactly how many plans of these types are sponsored. Since the payments are 

made to an individual’s IRAs, the IRS counts the number of taxpayers that are reporting contributions or 

who have such an account rather than the number of businesses that sponsor them. The business 

sponsoring the plan is not required to fill out a Department of Labor Form 5500, as are retirement plans 

formed under the ERISA regulations. 

30
1.49 million taxpayers reported contributions to a SIMPLE IRA account and that has 

grown by 30 percent to 1.94 million in 2004. However, the total number of SIMPLE 

IRA accounts is still below the level of the SEP accounts, increasing from 1.57 million in 

2000 to 2.5 billion in 2004. 

While that reflects an increase of less than half a million participants this format 

does have merit for helping smaller businesses provide a retirement plan for its 

employees and information on these plans should be more widely disseminated to small 

businesses. The 2003 EBRI Small Employer Retirement Survey indicated that less that 

27 percent of non-plan-sponsoring small businesses were either “somewhat” or “very” 

familiar with SEPs and only 47 percent were “somewhat” or “very” familiar with 

SIMPLEs whereas 85 percent of non-sponsoring businesses in the group were 

“somewhat” or “very” familiar with 401(k) plans. 52 This certainly implies that the DOL 

brochures on these types of plans could be more widely distributed by groups that are 

coming into contact with small business owners. 

Congress has also taken a step toward making ERISA plans somewhat less 

burdensome for small businesses to use. One of the issues related to ERISA plans is that 

the nondiscrimination testing that insures that plans receiving tax breaks are not 

providing substantially more generous benefits to “highly compensated employees” than 

they do to other participants in the plan can be more burdensome for small businesses 

than for large businesses. With a very small pool of employees participating, it may lead 

to sharp readjustments in contributions for all plan participants if a few either leave the 

company or leave the plan. To help resolve this, there is a “safe harbor” provision in 

401(k) law that provides employers with the option of not having to do nondiscrimination 

testing every year in return for some guarantees of pension contributions to all their plan 

members. One type of these safe harbor 401(k) plans is the SIMPLE 401(k). Like the 

SIMPLE IRA, the SIMPLE 401(k) plan is restricted to business with 100 or fewer 

employees. Because these are a type of 401(k) plan they are not as easy to set up as a 

SIMPLE IRA plan and they do have DOL reporting requirements. 

However, these efforts to provide a more simplified retirement program may not 

overcome the major concerns of small business owners about starting plans. Given the 

uncertainty around the revenue stream and sometimes the business’ potential for success 

employers will be reluctant to commit to certain levels of contributions. Furthermore, the 

 

52 Furthermore 47 percent of the businesses had never heard of SEPs and 32 percent had never heard of 

SIMPLE plans. 

31
complicated process for shutting down an ERISA-type plan can also be an impediment 

for any business owner that is uncertain of his or her business’ likelihood of success.53

Balancing Policy Goals 

Policymakers recognize that there is a balancing of goals with respect to making 

retirement plans less burdensome. Using private businesses as conduits for retirement 

savings has a great many potential benefits but with workers making their own 

contributions and mixing them in with company contributions there is an absolute 

necessity for protecting workers against potential malfeasance. Also, the tax deferrals 

available through these plans make them attractive for people to save for their retirement 

but also open the system up for misuse by those who wish to shelter income that would 

otherwise be saved in a way that made it taxable. But the laws guarding against these 

possible abuses of the system also mean the potential small business sponsor is faced 

with a daunting set of rules and regulations to understand and follow. 

The other two policy issues are somewhat less complex but may be no easier to 

solve. Better education about financial literacy would help improve participation rates 

among workers who have access to a plan and contribution rates among workers are 

already participating in the plan. Part of this is to help enlighten people about the real 

challenges of funding retirement at a relatively young age. The number of people listing 

“can’t afford to contribute” and “don’t want to tie the money up” as the reason for not 

participating in a retirement plan may indicate a lack of understanding about these longterm choices by some of these workers. The Social Security Administration already takes 

one important step in this direction by sending statements each year that provide 

estimates of a person’s potential Social Security payments at retirement. 

However, even to put those numbers in a financial planning perspective, people 

must be able to understand the underlying assumptions about wages and continued 

contributions to the system. Furthermore, people have to understand how to evaluate 

what it is going to cost to live during their retirement years and how many years they will 

be expected to supplement the Social Security income with savings. Studies on financial 

literacy indicate that many households lack even the most basic understanding of 

 

53 The Department of Labor had a working group prepare a report on “Financial Literacy of Plan 

Participants and the Role of the Employer.” One of that report’s findings was to update Interpretive 

Bulletin 96-1 on a regular basis to help plan sponsors understand their fiduciary responsibilities. However, 

that bulletin is somewhat intimidating to readers who are seeking information about setting up plans and 

who do not already have a good understanding of what is involved. DOL does have a brochure that 

provides more general information but the EBRI survey indicates a large percentage of small businesses 

have not seen it. 

32
economic concepts needed to judge debt obligations, savings and investment options.54 

The length of time and potential risks to one’s investments between the time money is 

saved and retirement makes it difficult to choose the most appropriate retirement options 

and saving vehicles. If a person does not understand interest rates, compounding of 

money or other basic financial computations, these decisions become overwhelmingly 

difficult. 

Remedying this lack of financial education would also help reduce the relatively 

large percentage of people who cited “other” reasons for not participating in a plan. 

Retirement plans are confusing to understand and making decisions about them is 

overwhelming for some people. While “I don’t understand it” is not one of the specific 

choices in the SIPP survey’s options it is one reason that people do not participate in 

retirement plans or if they do participate do not make more effective choices for investing 

their money. Educational materials on the basics of retirement planning need to be made 

available in a wide array of financial and educational settings from the time people are 

quite young in order to build-up a level of financial literacy over time. 

One method that has helped to increase employers’ education of their employees 

about the benefits of participating in and contributing to the employer sponsored 

retirement plan has been the nondiscrimination provisions of the these plans. Since the 

ability of the “highly-compensated” group to invest in the plans was closely tied to the 

actions of the rest of the participants, there was an incentive for the former to help 

educate the latter in the virtues of saving for retirement and perhaps encourage them to do 

so by making matching contributions when participants make contributions. The safe 

harbor provisions that have been put in law to help make the plans easier to administer 

for small businesses also reduce the discrimination testing that made it beneficial for 

employers to invest in the financial literacy of their employees.55 This is another example 

of the balancing of priorities that policymakers face. 

 Often sheer inertia keeps people from participating. This is where automatic 

enrollment in a DC plan can be helpful.56 For plans with this attribute, a new employee 

is automatically enrolled in a plan unless the person specifically decides not to 

participate. That is in contrast to the more standard situation for DC plans where workers 

 

54 Lusardi, A. and O. Mitchell. Financial Literacy and Retirement Preparedness: Evidence and 

Implications for Financial Education Programs. Michigan Retirement Research Center, December 2006. 

55 Munnell, A., A. Sunden and C. Taylor. What Determine 401(k) Participation and Contributions? Center 

for Retirement Research at Boston College. December 2000. 

56 DB plans usually have automatic enrollment. 

33
must make an effort to sign up for the plan and make decisions about how much to 

contribute, what to invest in, and the other decisions associated with the plan. Several 

studies have shown that automatic enrollment increases participation rates especially 

among the youngest employees, those that are least likely to participate in a retirement 

plan. One study found that 86 percent of new workers participated in a plan when the 

choice was to opt-out of the plan compared to 45 percent when the choice was to opt-in 

to a plan. The results for lower salaried individuals was even more striking, 77 percent 

participating under an opt-out plan and only 25 percent participating under an opt-in

plan. r 

 to 

ing 

 are 

e a 

retirem

nless 

in 

retirement accounts until the time of retirement. This is an especially important 

 

57 This very simple change to how the plan is set up could both increase the numbe

of people participating and increase the number of participants that are making 

contributions since the automatic participation usually sets up an automatic deduction

the plan as well.58 However, there have also been studies that point to the downside of 

this process. Once people are automatically enrolled, there is often inertia in mak

changes to the automatic contribution levels. Consequently, those participants who

now making active decisions about how much to save and what to invest in would be

likely to save less under automatic enrollment rules. That has caused some retirement 

experts to argue in favor of active enrollment, giving employees a cut-off date to mak

decision about enrolling in the plan.59 While these options may increase participation in

the plan they also provide another level of decision making for potential sponsors of 

ent plans. 

A related issue is how to keep retirement funds in retirement accounts when 

workers leave jobs that have retirement plans. DC plans generally have the option of 

taking your vested accumulated assets with you when you leave a job. Those can be 

deposited or “rolled over” into an individual IRA account or a new 401(k) without a tax

penalty but there is also some leakage from the system as workers cash their plans out 

and pay the tax penalties for removing money early from a retirement plan. A system 

whereby the automatic option would be for the plan assets to be directed to an IRA u

the participant specifies otherwise might help to reduce leakage and keep money 

57 Nesmith, W., S. Utkus and J. Young. “Measuring the Effectiveness of Automatic Enrollment,” Vanguard 

Center for Retirement Research, vol. 31 (2007) 

58 This would also help reduce the number of people who are unaware that they are eligible for a plan since 

the business would automatically enroll those who are eligible. 

59 Choi, J., D. Laibson and B. Madrian. “Plan Design and 401(k) Savings Outcomes,” National Tax Journal

52(2), June 2004, pp. 275-298. 

34
consideration when workers are likely to have numerous jobs during their working lives. 

But once again this increases the plans sponsors’ responsibilities.60

There is one other automatic process that is being increasingly considered to help 

people with retirement savings not to use up their savings too early in their retirement. 

That is automatic annuitization of retirement benefits at the time of retirement. This 

would automatically use part of the retirement funds in the account to buy an annuity 

when the employee retires unless the employee makes the decision to opt-out and take a 

lump-sum distribution.61 

One other balancing of policy goals may involve the choices that are made about 

health insurance coverage. The current policy debates about health insurance coverage 

include some proposals that would mandate health insurance for workers. That may 

cause some workers to make the choice of funding their health insurance premiums with 

money they might otherwise have saved for retirement. The tables in Section 3 indicate 

that 20 to 25 percent of workers who do not participate in retirement plans do not think 

they can afford to do so. A policy choice that mandates some of their income be used to 

cover health insurance premiums may also increase the number of people who do not 

participate in retirement savings. Health insurance coverage and retirement savings for 

every worker are both worthy goals but may not be immediately achievable at one time. 

Possible Alternatives for Retirement Savings 

The complexities of retirement plans and the uncertainties about relying on 

businesses to sponsor plans in order to help workers to save for retirement has prompted 

several scholars to propose other alternatives. One is the Super Simple Savings Plan 

proposed by Perun and Steuerle.62 This would be a major overhaul to the system because 

it would require employers to sponsor a plan and would be based on four concepts: 

universality for all workers regardless of where they work, better incentives for low- and 

middle-income workers, tax law that focuses primarily on increasing retirement assets of 

the low- and middle-income worker rather than policing the behavior of the high-paid 

 

60 Under current rules, an employer will automatically roll-over a DC account balance of between $1,000 

and $5,000 into an IRA and will cash out any plan with less than $1,000 if the departing employee does not 

provide any instructions. 

61 Gale, W. et al. Increasing Annuitization in 401(k) Plans with Automatic Trial Income, Retirement 

Security Project, 2008. 

62 Perun, P. and C.E. Steuerle. Why Not a “Super Simple” Savings Plan for the United States? Urban 

Institute, 2008. 

35
workers, and a simpler design that eliminates many of the administrative costs of the 

current system. 

A somewhat less radical approach is the automatic IRA. As described by The 

Retirement Security Project, businesses that are more than 2 years old, with 10 or more 

employees and not already sponsoring a pension plan can use their payroll system to 

allow workers to save money in an individual IRA account. 63 David John and Mark 

Iwry, describe the benefits of such as system as allowing workers “not covered by an 

employer-sponsored retirement plan the opportunity to save through the powerful 

mechanism of regular payroll deposits that continue automatically. The employer’s 

administrative functions are minimal and should involve no out-of-pocket cost. In 

addition, the arrangement is market-oriented and realistic: it uses a well established and 

familiar vehicle, IRAs, provided by the same banks, mutual funds, insurance carriers, 

brokerage firms, credit unions and other private financial institutions that currently 

provide them.”64 However, the authors are careful to state that these are not meant to be 

a replacement for employer-sponsored plans. One protection against that is that the 

maximum annual savings amount allowed through an IRA is much lower than the 

amount that is allowed to be saved through a retirement plan. 

There is no one simple policy change that will increase the participation of 

workers in their retirement savings. However, several of the above proposals used 

together would broaden the number of workers making regular contributions into such 

plans. One of the most important aspects for the long run must be better education of 

workers as to the importance and necessity of saving for retirement and helping them 

have enough financial background and education to feel confident in making investment 

choices for those assets. 

Section 6: Conclusions 

 There are benefits to an employer-sponsored retirement plans when compared to 

individual opportunities to save for retirement. Having a system where people already 

have a plan available to them whereby payroll deductions can be made on a regular and 

 

63 Automatic IRAs: Extending Retirement Saving Opportunities to 75 Million More American Workers, The 

Retirement Security Project fact sheet, February 2007. 

64 John, D. and J.M. Iwry. Pursuing Universal Retirement Security Through Automatic IRAs, Congressional 

Testimony before the Subcommittee on Select Revenue Measures, Committee on Ways and Means, U.S. 

House of Representatives, June 26, 2008. 

36
automatic basis is more likely to encourage people to save for retirement than depending 

on individual savings alone. The fiduciary responsibilities of the retirement plan sponsor 

also mean that at least a minimum of information about the retirement plan is provided. 

Even so, a significant percentage of workers whose employers sponsor a retirement plan, 

do not participate in it. Among the workers that are participating in plans, half do not 

make a contribution to the plan themselves. 

These data confirm previously reported general information about retirement 

plans by firm size. Employees working for small firms with less than 100 workers are 

much less likely to have a retirement plan (DB or DC) available to them than do 

employees of firms with 100 or more employees. Large firms are also somewhat more 

likely to provide multiple pension plans to participants (Table 7). Small firms are 

somewhat more likely than large firms to offer DC plans, although all size firms are more 

often offering that type of plan than they did a decade ago. 

However, for those who have a plan offered by their employer, there are not wide 

differences by firm size. Workers participate at about the same rate. Workers make 

contributions at about the same rate and by roughly the same amount. This implies that 

providing a plan would be the biggest step forward in helping to raise the amount of 

money saved by workers in small businesses. 

 These data provide somewhat more information about why people do not 

participate in retirement plans that are available to them and therefore provide some 

guidance for policy makers about how to increase the participation in pension plans. 

Interestingly, the reasons given by employees of small firms are not very different from 

the reasons given by employees of large firms. 

 Obviously, the biggest step that can be taken is to make it easier for small firms to 

provide some sort of retirement plan to their employees. The Labor Department does 

provide employers with some information about SIMPLE IRA, SEP IRA and SIMPLE 

401(k) plans that are designed to be easier for small businesses to sponsor. The 

Department of Labor along with the IRS has also put together a document on automatic 

enrollment 401(k) plans for small businesses, these are the opt-out plans where people are 

automatically enrolled unless they decide not to participate. These brochures describe the 

basic requirements of providing such plans. However, the fiduciary responsibilities, 

record keeping requirements and plan documents that any employer-sponsored plan must 

comply with will tend to discourage a certain percentage of small businesses from 

participating in these options. Consequently, individual retirement account options will 

need to be maintained even if the share of employer plans is increased. 

37
While traditionally, the DB plan has been considered a “better” and less risky 

method of accumulating retirement savings for workers, both large and small firms have 

moved away from these plans toward DC plans. On the other hand, DB plans often have 

long vesting periods where employees who worked less than five years did not earn any 

claim on pension accumulations and workers frequently cannot receive benefits until they 

retire. Most DC plans have relatively short vesting periods and employees have a claim 

on some or all of their assets in a year of employment or less. Consequently, the shift 

toward DC plans overall and the much higher use of DC plans by small businesses may 

be beneficial to a population that has several jobs during a lifetime of working. 

A relatively large percent of employees perceive that they are not eligible for a 

retirement plan. There certainly are restrictions on retirement plans that do not allow 

part-time workers to join and there are usually delays, even for 401(k) plans, before new 

employees can join a plan. In a workforce that is becoming more transient, that may 

reduce the number of people that participate in savings opportunities for their futures. 

However, the differences between eligibility reports from businesses compared with 

individual reporting may also indicate that people are not well educated about the 

workings of retirement plans and their eligibility for them. Small businesses, in 

particular, are unlikely to have the human resources departments that are often tasked 

with these educational responsibilities in larger companies. Consequently, employees 

may be left with incomplete information about their options. 

38
Appendix A: Data

The SIPP survey assigns a weight to each observation; that allows the data to 

approximate the entire population it is covering. The data used for this study produced an 

estimate for 124.7 million private sector workers and business owners. This was checked 

against other information available on the number of workers in the economy in 2006 

(the time period for the survey). The Bureau of Labor Statistics’ household survey 

indicates that there were 121.8 million nonagricultural private industry workers including 

the self-employed in 2006. The Census Bureau’s Statistics of U.S. Businesses (SUSB) 

shows there were 119.9 million private sector workers in 2006 but that data set does not 

include the self-employed workers that do not have employees. The Census reports there 

were an additional 20.8 million businesses with no paid employees in 2006. If the SUSB 

data are added to the estimate of non-employer businesses, the total is 140.7 million. 

However, the 20.8 million businesses with no paid employees include many businesses 

that are a second job for the owner. The SIPP data used for this study only includes 

owners of businesses who considered that to be their primary job.65 The SIPP data seem 

to approximate the population totals from other sources although it may slightly 

overestimate the numbers. 

Table A.1: Comparison of the Distribution of Workers in the SIPP Data to the Distribution 

of Workers from other Census Data Sources by Firm Size (Percent) 

100+ <100 20-99 10-19 <10 

2006 SUSB 64.4 35.6 17.6 7.2 10.8 

2006 SUSB plus nonemployer 

businesses (Census) 

54.9 45.2 15.0 6.2 24.0 

100+ <100 25-99 10-24 <10 

2006 SIPP 54.4 45.6 12.3 9.5 23.8 

Source: Census Bureau, SIPP and Statistics of U.S. Businesses 

The other cross check was to examine the distribution of the worker counts by 

firm size against other sources. There is only one source of information with which to 

make this comparison. That is the Census Bureau’s SUSB data. Only two categories of 

the SUSB data match the categories of the SIPP data, the 100+ category and the <10 

category (although the latter is not strictly comparable using the SUSB data alone since 

the nonemployer businesses are missing from the SUSB data.) The following table 

 

65 In addition, the owners in the SIPP survey may have employees although not all of them do. 

39
40

compares the distribution across business sizes of the workers in the SIPP survey and 

those in the SUSB data alone and the SUSB data added to the nonemployer business data 

(assuming one person, the owner, per business). The distribution of the SIPP data is 

very close to the distribution of the SUSB data plus the nonemployer business data. 

Since the SIPP data probably covers a universe somewhere between the two SUSB-based 

calculations, it may mean that the SIPP data is showing a somewhat higher percentage of 

small business workers than the SUSB data set would estimate. 
Appendix B: Additional Tables 

The tables in the Appendix are generally more disaggregated than those in the text and are 

based on fewer observations. The data are provided to complete the picture of pension plan 

coverage by firm size but because of the smaller number of observations for the more disaggregated 

small business size groups, the estimates will not have the same level of precision as those 

percentages that are based on all small businesses combined. 

Table B.1: Distribution of Private Industry Workers in Small Businesses Whose Employers Sponsor a 

Retirement Plan by Plan Type and Firm Size Category, 2006 (Percent) 

Firm employment size 

<10 10-24 25-49 50-99 <100 

Defined Benefit (DB) Plans 

 Respondent participates in a DB plan as the only or 

the most important plan 

17.8 17.8 21.3 19.6 19.2 

Respondent does not participate in the employer’s 

plan but it is a DB plan.* 

7.5 6.0 5.6 3.9 5.8 

Defined Contribution (DC) Plans 

 Respondent participates in a DC plan as only or most 

important plan 

57.5 51.2 49.8 47.1 50.2 

Respondent does not participate in employer’s plan 

but it is a DC plan 

17.9 26.4 25.7 29.8 25.0 

Cash Balance Plans 

 Respondent participates in a cash balance plan as only 

or most important plan 

7.6 3.0 3.7 5.1 4.8 

*The respondents indicate that the plan they do not participate in is not a 401(k) type of plan; it is assumed that 

those are DB plans. 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one 

plan. 

Source: SIPP, Census Bureau 

41
Table B.2: Detailed Distribution of Private Industry Workers in Small Businesses Whose Employers 

Sponsor a Retirement Plan—by Plan Type and Firm Size Category, 2006 (Percent)

Firm size employment

< 10 10-24 25-49 50-99 <100

Defined Benefit (DB) Plans 

 Respondent participates in one plan and it is 

a DB plan 

16.0 14.9 18.4 17.0 16.6 

 Respondent participates in more than one 

plan and the most important is a DB plan.

2.9 2.9 2.9 2.7 2.6 

 Respondent participates in more than one plan 

and the second most important plan is a DB 

plan. 

1.0 0.7 1.2 2.2 1.3 

Respondent does not participate any plan but 

the employer sponsors a DB plan.* 

7.5 6.0 5.6 3.9 5.8 

Defined Contribution (DC) Plans 

 Respondent participates in one plan and it is 

a DC plan. 

42.9 39.1 37.1 35.1 38.5 

 Respondent participates in more than one 

plan and the most important is a DC plan.

1.6 1.6 1.7 2.3 1.8 

 Respondent participates in more than one plan 

and second most important plan is a DC 

plan. 

3.3 3.8 3.6 3.2 3.5 

Respondent does not participate in any plan 

but employer sponsors a DC plan. 

15.6 23.7 22.7 27.3 22.3 

 Respondent identifies participation in one DC 

plan but also participates in an employer’s 

401(k)-type plan 

8.3 4.5 6.1 5.7 6.1 

 Respondent reports there is no retirement 

plan sponsored by the employer but indicates 

participation in an employer’s 401(k)-type 

plan. 

7.1 6.1 4.7 4.1 5.0 

Respondent reports the employer does not 

sponsor any retirement plan but also 

indicates the employer does sponsor a 

401(k)-type plan in which respondent does 

not participate 

2.3 2.7 3.0 2.6 2.7 

Cash Balance Plans 

 Respondent participates in one plan and it is 

a cash balance plan. 

6.5 2.6 3.4 4.7 4.3 

 Respondent participates in more than one 

plan and the most important is a cash balance 

plan. 

1.0 0.4 0.3 0.5 0.5 

 Respondent participates in more than one plan 

and second most important plan is a cash 

balance plan. 

0.0 0.3 0.1 0.1 0.2 

*The respondents indicate that the plan they do not participate in is not a 401(k) type of plan; it is assumed 

that those are DB plans. 

Note: The total adds to more than 100 because some respondents participate in more than one plan. 

Source: SIPP, Census Bureau 

42
Table B.3: Detailed Distribution of Private Industry Workers Whose Employers Sponsor a Retirement 

Plan by Plan Type —All Firms 1998, 2003, 2006 (Percent) 

1998 2003 2006

Defined Benefit (DB) Plans (includes cash balance in 1998)

 Respondent participates in one pension plan and it is a defined 

benefit plan 

26.8 21.5 20.4

 Respondent participates in more than one pension plan and the most 

important is a defined benefit plan. 

7.6 7.0 5.0

 Respondent participates in more than one pension plan and the second 

most important plan is a defined benefit plan.

5.9 3.9 3.9

Respondent does not participate in the employer’s pension plan.* 6.9 6.7 4.6

Defined Contribution (DC) Plans 

 Respondent participates in one plan and it is a DC plan. 26.0 31.4 31.7

 Respondent participates in more than one plan and the most 

important is a DC plan. 

6.1 4.7 4.0

 Respondent participates in more than one plan and second most 

important is a DC plan. 

7.8 7.3 5.3

Respondent does not participate in any plan but employer sponsors a 

DC plan 

21.9 18.8 22.7

DC/401(k)-Type Plans that the Employer Sponsors but the Respondent does Not Identify as a 

Retirement Plan 

 Respondent identifies participation in one DC plan but also 

participates in an employer’s 401(k)-type plan 

4.9 4.5 6.9

 Respondent reports there is no retirement plan sponsored by the 

employer but indicates participation in an employer’s 401(k)-type 

plan. 

2.6 2.7 3.9

Respondent reports the employer does not sponsor any retirement 

plan but also indicates the employer does sponsor a 401(k)-type plan 

in which respondent does not participate

2.1 2.4 2.5

Cash Balance Plans 

 Respondent participates in one pension and it is a cash balance plan. NA 4.1 4.3

 Respondent participates in more than one plan and most important is 

a cash balance plan. 

NA 0.8 0.9

 Respondent participates in more than one plan and second most 

important is a cash balance plan. 

NA 1.3 0.7

*The respondents indicate that the plan they do not participate in is not a 401(k)-type of plan; it is assumed that most of those are DB 

plans. 

Note: Cash balance plans were not a survey option in 1998, those were probably allocated the DB plans. 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one plan. 

Source: SIPP, Census Bureau

43
Table B.4: Detailed Distribution of Private Industry Workers in Large Firms Whose 

Employers Sponsor a Retirement Plan by Plan Type—Large Firms (100+) 1998, 2003, 2006 

(Percent) 

1998 2003 2006

Defined Benefit (DB) Plans (includes cash balance in 1998)

 Respondent participates in one plan and it is a DB plan 27.5 22.3 21.6

 Respondent participates in more than one plan and the most 

important is a DB plan. 

8.4 7.8 5.8

 Respondent participates in more than one plan and the second 

most important is a DB plan. 

6.7 4.5 4.7

Respondent does not participate in the employer’s plan but the 

employer sponsors a DB plan.* 

6.7 6.5 4.2

Defined Contribution (DC) Plans 

 Respondent participates in one plan and it is a DC plan. 24.2 29.6 29.5

 Respondent participates in more than one plan and the most 

important is a DC plan. 

6.7 5.2 4.7

 Respondent participates in more than one plan and second most 

important is a DC plan. 

8.3 7.9 5.9

Respondent does not participate in a plan but employer 

sponsors a DC plan 

22.1 19.3 22.9

DC/401(k)-Type Plans that the Employer Sponsors but the Respondent does Not Identify as a 

Retirement Plan

 Respondent identifies participation in one DC plan but also 

participates in an employer’s 401(k)-type plan 

5.5 4.8 7.2

 Respondent reports there is no retirement plan sponsored by the 

employer but indicates participation in an employer’s 401(k)-

type plan. 

2.4 2.5 3.5

Respondent reports the employer does not sponsor any 

retirement plan but also indicates the employer does sponsor a 

401(k)-type plan in which respondent does not participate

2.0 2.2 2.4

Cash Balance Plans 

 Respondent participates in one pension and it is a cash balance plan. NA 3.7 4.4

 Respondent participates in more than one plan and most important is a 

cash balance plan. 

NA 0.9 1.0

 Respondent participates in more than one plan and second most 

important is a cash balance plan. 

NA 1.4 0.9

*The respondents indicate that the plan they do not participate in is not a 401(k) type of plan; it is assumed that those are 

DB plans. 

Note: Cash balance plans were not an option in the 1998 survey, those were probably allocated to DB plans. 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one plan. 

Source: SIPP, Census Bureau

44
Table B.5: Detailed Distribution of Private Industry Workers Whose Employers Sponsor a 

Retirement Plan by Plan Type—Firms with 50-99 employees 1998, 2003, 2006 (Percent) 

1998 2003 2006

Defined Benefit (DB) Plans (includes cash balance in 1998)

 Respondent participates in one plan and it is a DB plan 24.4 17.0 17.0

 Respondent participates in more than one plan and the most 

important is a DB plan. 

4.9 2.7 2.7

 Respondent participates in more than one plan and the second most 

important is a DB plan. 

4.0 2.0 2.2

Respondent does not participate in the employer’s plan but the 

employer sponsors a DB plan.* 

7.2 7.0 3.9

Defined Contribution (DC) Plans 

 Respondent participates in one plan and it is a DC plan. 30.6 36.7 35.1

 Respondent participates in more than one plan and the most 

important is a DC plan. 

4.6 3.8 2.3

 Respondent participates in more than one plan and second most 

important is a DC plan. 

5.5 4.8 3.1

Respondent does not participate in a plan but employer sponsors a 

DC plan 

21.5 20.7 27.3

DC/401(k)-Type Plans that the Employer Sponsors but the Respondent does Not Identify as a 

Retirement Plan 

 Respondent identifies participation in one DC plan but also 

participates in an employer’s 401(k)-type plan 

2.0 3.0 5.7

 Respondent reports there is no retirement plan sponsored by the 

employer but indicates participation in an employer’s 401(k)-type 

plan. 

3.7 3.6 4.1%

Respondent reports the employer does not sponsor any retirement 

plan but also indicates the employer does sponsor a 401(k)-type 

plan in which respondent does not participate

3.1 3.1 2.6

Cash Balance Plans 

 Respondent participates in one pension and it is a cash balance plan. NA 4.7 4.7

 Respondent participates in more than one plan and most important 

is a cash balance plan. 

NA 0.8 0.5

 Respondent participates in more than one plan and second most 

important is a cash balance plan. 

NA 0.5 0.1

*The respondents indicate that the plan they do not participate in is not a 401(k) type of plan; it is assumed that those are DB 

plans 

Note: Cash balance plans were not an option in the 1998 survey, those are probably allocated to DB plans. 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one plan. 

Source: SIPP, Census Bureau

45
Table B.6: Detailed Distribution of Private Industry Workers Whose Employers Sponsor a 

Retirement Plan by Plan Type —Firms with 25-49 employees 1998, 2003, 2006 (Percent) 

1998 2003 2006

Defined Benefit (DB) Plans (includes cash balance in 1998)

 Respondent participates in one plan and it is a DB plan 22.2 17.5 18.4

 Respondent participates in more than one plan and the most 

important is a DB plan. 

6.0 4.7 2.95

 Respondent participates in more than one plan and the second most 

important is a DB plan. 

3.6 2.3 1.2

Respondent does not participate in the employer’s plan but the 

employer sponsors a DB plan.* 

6.2 6.4 5.6

Defined Contribution (DC) Plans 

 Respondent participates in one plan and it is a DC plan. 35.0 38.0 37.1

 Respondent participates in more than one plan and the most 

important is a DC plan. 

3.8 3.6 1.7

 Respondent participates in more than one plan and second most 

important is a DC plan. 

6.2 5.9 3.6

Respondent does not participate in a plan but employer sponsors a 

DC plan 

22.1 18.2 22.7

DC/401(k)-Type Plans that the Employer Sponsors but the Respondent does Not Identify as a 

Retirement Plan 

 Respondent identifies participation in one DC plan but also 

participates in an employer’s 401(k)-type plan 

3.0 3.3 6.2

 Respondent reports there is no retirement plan sponsored by the 

employer but indicates participation in an employer’s 401(k)-type 

plan. 

3.1 3.8 4.8

Respondent reports the employer does not sponsor any retirement 

plan but also indicates the employer does sponsor a 401(k)-type 

plan in which respondent does not participate

1.6 2.9 3.0

Cash Balance Plans 

 Respondent participates in one pension and it is a cash balance 

plan. 

NA 4.1% 3.4

 Respondent participates in more than one plan and most important 

is a cash balance plan. 

NA 0.7% 0.3

 Respondent participates in more than one plan and second most 

important is a cash balance plan. 

NA 0.8% 0.1

*The respondents indicate that the plan they do not participate in is not a 401(k) type of plan; it is assumed that those are DB 

plans. 

Note: Cash balance plans were not an option in the 1998 survey, those are probably allocated to DB plans. 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one plan. 

Source: SIPP, Census Bureau

46
Table B.7: Detailed Distribution of Private Industry Workers Whose Employers Sponsor a 

Retirement Plan by Plan Type—Firms with 10-24 employees 1998, 2003, 2006 (Percent) 

1998 2003 2006

Defined Benefit (DB) Plans (includes cash balance in 1998)

 Respondent participates in one plan and it is a DB plan 24.2 18.7 14.9

 Respondent participates in more than one plan and the most 

important is a DB plan. 

4.6 4.7 2.9

 Respondent participates in more than one plan and the second most 

important is a DB plan. 

2.1 1.6 0.7

Respondent does not participate in the employer’s plan but the 

employer sponsors a DB plan.* 

8.1 6.1 6.0

Defined Contribution (DC) Plans 

 Respondent participates in one plan and it is a DC plan. 30.8 38.1 39.1

 Respondent participates in more than one plan and the most 

important is a DC plan. 

2.7 1.4 1.6

 Respondent participates in more than one plan and second most 

important is a DC plan. 

5.2 4.7 3.8

Respondent does not participate in a plan but employer sponsors a 

DC plan 

24.2 17.9 23.7

DC/401(k)-Type Plans that the Employer Sponsors but the Respondent does Not Identify as a

Retirement Plan 

 Respondent identifies participation in one DC plan but also 

participates in an employer’s 401(k)-type plan 

2.8 3.3 4.5

 Respondent reports there is no retirement plan sponsored by the 

employer but indicates participation in an employer’s 401(k)-type 

plan. 

2.7 3.2 6.1

Respondent reports the employer does not sponsor any retirement 

plan but also indicates the employer does sponsor a 401(k)-type 

plan in which respondent does not participate

2.6 3.5 2.7

Cash Balance Plans 

 Respondent participates in one pension and it is a cash balance 

plan. 

NA 5.6 2.6

 Respondent participates in more than one plan and most important 

is a cash balance plan. 

NA 0.4 0.4

 Respondent participates in more than one plan and second most 

important is a cash balance plan. 

NA 0.4 0.3

*The respondents indicate that the plan they do not participate in is not a 401(k) type of plan; it is assumed that most of those are 

defined benefit types of plans but some percentage of them could also be cash balance plans. The data do not allow those to be 

identified. 

Note: Cash balance plans were not an option in the 1998 survey, those are probably allocated to DB plans 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one plan. 

Source: SIPP, Census Bureau

47
48

Table B.8: Detailed Distribution of Private Industry Workers Whose Employers Sponsor a 

Retirement Plan by Plan Type —Firms with <10 employees 1998, 2003, 2006 (Percent) 

1998 2003 2006

Defined Benefit (DB) Plans (includes cash balance in 1998)

 Respondent participates in one plan and it is a DB plan 25.1 22.0 16.0

 Respondent participates in more than one plan and the most important 

is a DB plan. 

4.8 5.4 1.8

 Respondent participates in more than one plan and the second most 

important is a DB plan. 

2.2 1.0 1.0

Respondent does not participate in the employer’s plan but the 

employer sponsors a DB plan.* 

8.3 8.7 7.5

Defined Contribution (DC) Plans 

 Respondent participates in one plan and it is a DC plan. 33.0 36.7 42.9

 Respondent participates in more than one plan and the most important 

is a DC plan. 

3.7 2.8 1.6

 Respondent participates in more than one plan and second most 

important is a DC plan. 

6.3 5.7 3.3

Respondent does not participate in a plan but employer sponsors a 

DC plan 

18.7 12.4 15.6

DC/401(k)-Type Plans that the Employer Sponsors but the Respondent does Not Identify as a 

Retirement Plan 

 Respondent identifies participation in one DC plan but also 

participates in an employer’s 401(k)-type plan 

2.8 5.2 8.3

 Respondent reports there is no retirement plan sponsored by the 

employer but indicates participation in an employer’s 401(k)-type 

plan. 

4.3 2.4 7.1

Respondent reports the employer does not sponsor any retirement 

plan but also indicates the employer does sponsor a 401(k)-type plan 

in which respondent does not participate

2.1 2.4 2.3

Cash Balance Plans 

 Respondent participates in one pension and it is a cash balance plan. NA 6.9 6.6

 Respondent participates in more than one plan and most important is 

a cash balance plan.

NA 0.2 1.0

 Respondent participates in more than one plan and second most 

important is a cash balance plan. 

NA 1.7 0.0

*The respondents indicate that the plan they do not participate in is not a 401(k) type of plan; those are assumed to be DB plans. 

Note: Cash balance plans were not an option in the 1998 survey, those are probably allocated to DB plans 

Note: The total adds to more than 100 because some respondents indicate they participate in more than one plan. 

Source: SIPP, Census Bureau
Table B.9: Reasons for Not Participating in Firm’s Retirement Plan (Private Businesses all 

sizes), 1998, 2003, 2006 (Percent)

Reason for not participating in the pension plan 1998 2003 2006 

No one in my type of job is allowed in the plan 11.9 9.7 9.8 

Don’t work enough hours, weeks, months per year 26.5 29.8 24.3 

Haven’t worked long enough for this employer 37.4 28.1 26.0 

Started job too close to retirement date 0.6 0.8 0.5 

Too young to participate 3.2 3.0 2.1 

Can’t afford to contribute 14.3 18.0 17.2 

Don’t want to tie up money 9.2 11.2 8.8 

Employer doesn’t contribute or does not contribute enough 1.8 1.8 2.1 

Don’t plan to be on the job long enough 3.8 2.4 1.9 

Don’t need it 1.7 1.7 1.4 

Have an IRA or other pension plan coverage 1.8 2.3 1.8 

Spouse has a pension plan 2.0 1.3 1.1 

Haven’t thought about it 6.8 6.2 5.5 

Other reason 9.3 11.4 11.9 

Percentage of respondents indicating this as a reason. 

Total may exceed 100 since more than one response per person is allowed 

Source: SIPP, Census Bureau 

Table B.10: Reasons for Not Participating in Firm’s 401(k)-Type (Private Businesses all 

sizes) 1998, 2003, 2006 (Percent) 

Reason for not participating in the pension plan 1998 2003 2006 

No one in my type of job is allowed in the plan 8.3 8.3 8.3 

Don’t work enough hours, weeks, months per year 11.1 9.4 13.0 

Haven’t worked long enough for this employer 14.2 14.0 16.6 

Started job too close to retirement date 0.3 1.0 0.7 

Too young to participate 0.9 2.0 0.3 

Can’t afford to contribute 25.5 23.6 25.5 

Don’t want to tie up money 17.1 20.5 12.7 

Employer doesn’t contribute or does not contribute enough 2.4 3.7 4.2 

Don’t plan to be on the job long enough 1.5 2.9 2.1 

Don’t need it 3.6 4.1 4.4 

Have an IRA or other pension plan coverage 4.5 3.7 4.0 

Spouse has a pension plan 2.0 2.0 0.9 

Haven’t thought about it 11.0 10.1 7.7 

Other reason 18.5 16.2 14.0 

Percentage of respondents indicating this as a reason. 

Total may exceed 100 since more than one response per person is allowed 

Source: SIPP, Census Bureau 

49
Table B.11: Reasons for Not Participating in Firm’s Retirement Plan Large Private Industry 

Firms (100+ Employees) 1998, 2003, 2006 (Percent) 

Reason for not participating in the pension plan 1998 2003 2006 

No one in my type of job is allowed in the plan 12.0 10.2 10.5 

Don’t work enough hours, weeks, months per year 26.7 30.0 24.7 

Haven’t worked long enough for this employer 37.3 26.4 25.4 

Started job too close to retirement date 0.6 0.6 0.5 

Too young to participate 3.4 2.8 2.1 

Can’t afford to contribute 14.7 19.1 17.3 

Don’t want to tie up money 9.4 11.7 9.4 

Employer doesn’t contribute or does not contribute enough 1.7 1.7 2.0 

Don’t plan to be on the job long enough 3.6 2.4 2.0 

Don’t need it 1.6 1.8 1.1 

Have an IRA or other pension plan coverage 1.7 2.2 1.8 

Spouse has a pension plan 1.7 1.1 1.0 

Haven’t thought about it 7.1 7.0 6.0 

Other reason 9.1 11.2 10.8 

Total may exceed 100 since more than one response per person is allowed 

Source: SIPP, Census Bureau

Table B.12: Reason for Not Participating in Firm’s 401(k)-Type Plan Large Private Industry 

Firms (100+ Employees) 1998, 2003, 2006 (Percent) 

Reason for not participating in the pension plan 1998 2003 2006 

No one in my type of job is allowed in the plan 8.5 8.3 7.6 

Don’t work enough hours, weeks, months per year 9.7 7.5 11.5 

Haven’t worked long enough for this employer 13.4 11.9 16.3 

Started job too close to retirement date 0.4 1.0 0.8 

Too young to participate 0.9 2.3 0.4 

Can’t afford to contribute 26.7 25.0 26.5 

Don’t want to tie up money 17.9 21.5 12.9 

Employer doesn’t contribute or does not contribute enough 2.2 4.0 4.2 

Don’t plan to be on the job long enough 1.6 3.3 1.8 

Don’t need it 3.3 4.3 4.7 

Have an IRA or other pension plan coverage 4.6 3.2 3.8 

Spouse has a pension plan 1.9 1.9 0.7 

Haven’t thought about it 12.1 10.6 8.5 

Other reason 18.2 17.5 13.6 

Total may exceed 100 since more than one response per person is allowed 

Source: SIPP, Census Bureau

50
Table B.13: Reason for Not Participating in Firm’s Retirement Plan Small Private Industry 

Firms (50-99 Employees) 1998, 2003, 2006 (Percent) 

Reason for not participating in the pension plan 1998 2003 2006 

No one in my type of job is allowed in the plan 10.0 6.2 9.3 

Don’t work enough hours, weeks, months per year 16.9 30.7 16.5 

Haven’t worked long enough for this employer 37.2 35.8 26.8 

Started job too close to retirement date 0.4 1.0 0.7 

Too young to participate 1.9 3.8 4.4 

Can’t afford to contribute 16.1 16.6 14.9 

Don’t want to tie up money 13.4 10.3 8.7 

Employer doesn’t contribute or does not contribute enough 3.9 2.6 3.1 

Don’t plan to be on the job long enough 6.1 1.9 3.4 

Don’t need it 0.9 0.8 3.8 

Have an IRA or other pension plan coverage 1.1 2.8 2.0 

Spouse has a pension plan 1.9 1.0 2.1 

Haven’t thought about it 6.0 2.7 3.5 

Other reason 12.0 8.3 14.2 

Total may exceed 100 since more than one response per person is allowed 

Source: SIPP, Census Bureau

Table B.14: Reason for Not Participating in Firm’s Retirement Plan Small Private Industry 

Firms (25-49 Employees) 1998, 2003, 2006 (Percent) 

Reason for not participating in the pension plan 1998 2003 2006 

No one in my type of job is allowed in the plan 8.0 7.5 4.2 

Don’t work enough hours, weeks, months per year 21.9 26.4 22.5 

Haven’t worked long enough for this employer 41.1 33.5 23.2 

Started job too close to retirement date 0.7 0.6 0.5 

Too young to participate 3.9 3.0 1.7 

Can’t afford to contribute 16.6 14.7 23.0 

Don’t want to tie up money 10.2 12.0 6.0 

Employer doesn’t contribute or does not contribute enough 1.6 2.3 2.2 

Don’t plan to be on the job long enough 4.6 2.6 1.5 

Don’t need it 2.6 2.3 1.1 

Have an IRA or other pension plan coverage 2.4 3.7 1.1 

Spouse has a pension plan 1.7 2.6 1.6 

Haven’t thought about it 6.8 4.5 3.1 

Other reason 7.6 12.9 20.1 

Total may exceed 100 since more than one response per person is allowed 

Source: SIPP, Census Bureau

51
52

Table B.15: Reason for Not Participating in Firm’s Retirement Plan Small Private Industry 

Firms (10-24 Employees) 1998, 2003, 2006 (Percent) 

Reason for not participating in the pension plan 1998 2003 2006 

No one in my type of job is allowed in the plan 15.6 5.7 6.3 

Don’t work enough hours, weeks, months per year 27.0 27.2 23.3 

Haven’t worked long enough for this employer 37.1 36.1 32.7 

Started job too close to retirement date 0.0 1.7 0.6 

Too young to participate 2.1 5.4 0.5 

Can’t afford to contribute 10.5 14.7 14.6 

Don’t want to tie up money 7.7 10.0 6.3 

Employer doesn’t contribute or does not contribute enough 3.2 3.2 3.5 

Don’t plan to be on the job long enough 4.9 2.9 1.1 

Don’t need it 3.6 1.1 1.5 

Have an IRA or other pension plan coverage 4.1 0.6 2.6 

Spouse has a pension plan 4.0 3.7 0.8 

Haven’t thought about it 5.1 5.5 6.0 

Other reason 11.3 12.0 14.3 

Total may exceed 100 since more than one response per person is allowed 

Source: SIPP, Census Bureau

Table B.16: Reasons for Not Participating in Firm’s Retirement Plan Very Small Private 

Industry Firms (<10 Employees) 1998, 2003, 2006 (Percent) 

Reason for not participating in the pension plan 1998 2003 2006 

No one in my type of job is allowed in the plan 12.9 12.3 11.7 

Don’t work enough hours, weeks, months per year 34.7 30.7 32.2 

Haven’t worked long enough for this employer 36.5 32.0 28.3 

Started job too close to retirement date 0.9 2.1 0.9 

Too young to participate 2.5 3.0 0.9 

Can’t afford to contribute 8.4 11.2 15.7 

Don’t want to tie up money 3.0 5.1 6.3 

Employer doesn’t contribute or does not contribute enough 0.8 1.0 0.9 

Don’t plan to be on the job long enough 1.8 1.4 0.4 

Don’t need it 0.4 1.7 2.5 

Have an IRA or other pension plan coverage 1.6 3.3 1.2 

Spouse has a pension plan 5.3 1.3 1.6 

Haven’t thought about it 5.4 2.0 4.1 

Other reason 10.4 16.3 11.9 

Total may exceed 100 since more than one response per person is allowed 

Source: SIPP, Census Bureau
Appendix C: Demographics and Characteristics of Government 

Workers and Their Access to Retirement Plans 

Table C.1 [helpful to make headings in Table 2 and C.1 comparable] shows a 

distribution of government workers covering the same information as the distribution of 

private industry workers shown in Table 2 of the main report. 66 The table shows that a 

much higher percentage of government workers than private industry workers have a 

retirement plan available (DB and DC) and participate in those plans. However, about 

the same percentage of government workers as private industry workers do not 

participate in retirement plans even when there is one available. 

Table C.1: Distribution of Demographic Sub-Groups (Working in Government) by Status 

of Retirement Plan Participation 2006 (Percent) 

Participates in a Retirement Plan 

if Plan Available 

No Plan 

Available 

Yes No 

All Workers 67.8 15.6 16.5 

Males 70.2 14.7 15.1 

Females 66.0 16.4 17.6 

Married 72.0 12.9 15.1 

Single 60.7 20.4 19.0 

Less than High School Diploma 32.7 28.4 38.9 

High School Diploma 57.5 17.5 25.0 

College and/or College Diploma 68.5 16.4 15.1 

Graduate or Professional Degree 78.8 10.6 10.6 

White 68.8 14.8 16.4 

Black 63.2 20.1 16.7 

Asian 67.3 14.0 18.7 

Works 35 Hours or More 76.7 10.3 13.0 

Note: Rows sum to 100 percent of each demographic group. 

Source: SIPP, Census Bureau 

 While the percent of government workers participating in retirement plans is 

much higher than in private industry, the pattern across demographic groups is similar. 

Men are more likely to participate than women, married workers are more likely to 

participate than are single workers and the more education a person has the more likely 

 

66 Government workers include those that work for local, state and federal government. 

53
he or she is to participate in a retirement plan. In each group about 30 percent more 

people are participants than in the similar private industry group. This partially reflects 

the difference in availability although government workers do tend to be slightly older 

than the average private industry worker as well. Since older workers are more likely to 

participate in a retirement plan than are younger workers, this may have a marginal 

impact on the participation rates for government workers. However, the fact that 

approximately 16 percent of government workers do not participate in retirement plans 

when plans are offered indicates there may be educational or other issues that need to be 

addressed. 

 Table C.2 shows the same characteristics for government workers as Table 3, in 

the main report, shows for private industry workers. Government workers in all three 

groups are slightly older, on average, than are the private industry workers. A smaller 

percentage of the workers in each of the three groups is male, but men are still more 

likely than women to be participating in a retirement plan. All three groups have a higher 

percentage of married workers than does the private industry group, and a much higher 

percentage of the workers participating in a retirement plan are married. All three groups 

also have longer tenure at their job than do the similar groups in private industry. 

However, like private industry, the workers not participating in a plan have worked only 

about half as long as those that are participating in a plan. 

Table C.2: Characteristics of Government Workers in Retirement Plans and 

Not in Retirement Plans in 2006 

Worker Participates if Plan 

Available 

Workers with No 

Plan Available 

Yes No 

Average Age 44.7 years 40.8 years 41.6 years 

Percent Male 44.8 40.6 39.6 

Percent Married 67.0 52.0 57.7 

Percent w Less than High School 

Diploma 

1.0 3.9 5.1 

Percent with Advanced College or 

Professional Degree 

24.4 14.2 13.4 

Percent White 79.6 74.4 77.5 

Percent Black 14.0 19.3 15.2 

Percent Work > 34 Hrs. per Week 88.3 51.5 61.2 

Average Hours for Full-time 

workers 

42.3 hours 42.2 hours 41.9 hours 

Average No. of Years at Job 11.4 years 6.6 years 7.3 years 

54
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