young apprentice at construction site Tracking the nation’s youngest cohort of workers’ access to retirement plans is helpful in understanding the country’s overall retirement landscape, says John Scott, director of Pew’s retirement savings project. (Photo: Shutterstock)

Has access to workplace retirement plans improved for youngest segments of workforce?

That’s the question retirement researchers at Pew Charitable Trusts set out to answer when they compared plan access, take-up rates, and overall participation data from 1998 and 2012.

The study looked at two age cohorts, 18 to 24 and 25 to 31, using data from the Census Bureau’s Survey of Income and Program Participation, or SIPP.

Overall, access to workplace retirement plans has improved a bit for workers age 25 to 31, as increased access to defined contribution plans offset a drop in access to defined benefit plans.

Access to 401(k) type savings plans increased from 49 percent to 56 percent for 25 to 31 year-olds, while access to DB plans dropped from 15 percent to 12 percent, according to Pew’s analysis. Including both plan types, 68 percent of workers in the age group had access to a savings plan in 2012, compared to 64 percent in 1998.

The youngest workers saw access to DC plans increase from 38 percent to 44 percent, while access to DB plans was cut in half—from 14 percent in 1998 to 7 percent in 2012. Accounting for both plan types, 51 percent of workers age 18 to 24 had access to a savings plan in 2012, compared to 52 percent in 1998.

Pew says numbers on youngest savers matter

Some retirement economists have challenged the utility of tracking workplace plan data on the country’s youngest workers, many of whom may still be in high school, college, in low wage jobs that don’t offer plans, or beginning professional careers and forced to prioritize student debt over retirement saving.

Under that argument, tracking the availability of savings plans for 18 to 24 year-olds could skew overall access and participation rates downward, potentially painting a bleaker picture of the country’s retirement landscape than may actually be the case.

But John Scott, director of Pew’s retirement savings project, thinks tracking the experience of the youngest age cohort is helpful in understanding the country’s overall retirement landscape.

“I think including all data is useful as long as it is transparent,” Scott said in an email.

Only two-thirds of high school students go on to college, Scott noted.

“Understanding when people get access and start participating is useful. As long as the data can be disaggregated so you can look at different age groups, I think it’s fair,” he said.

Expecting those in their late teens or early twenties to be mindful of saving for an event that for some 50 years off is not unreasonable, given the increasing imperative of financial education in the workplace, and even nascent initiatives to incorporate it into K-12 curriculum, Scott says.

“Education at school or at work may help orient younger workers to a more long-term perspective,” he said.

“Perhaps more importantly, much of the growth in savings comes from compounding of returns over time, so starting early with small amounts could have a big impact on a person’s final account balance. Also, individuals can expect a lot to happen over a career and life, including financial shocks, job changes and other events that may make savings difficult. Starting early takes the pressure off of having to make up for those gaps in ability to save,” added Mr. Scott.

Participation rates improving, but still low among the young

Pew’s study notes the increase of defined contribution plans and its impact on improving access rates.

But it also shows that overall participation rates, which track the number of workers actually saving and account for those without access to a workplace plan, is low among the young.

Participation in DC plans was 37 percent for workers age 25 to 31 in 2012, up from 30 percent in 1998. DB plan participation stayed around 10 percent.

For 18 to 24 year-olds, participation rates in DC and DB plans were relatively unchanged—around 15 percent and 3 percent, respectively.

Race, gender and education also impact savings, Pew found. By gender, the most notable improvements were in the take-up and participation rates of women workers—25 to 31 year-olds saw a 10 percent increase in both categories.

Access to savings plans increased among all ethnicities, with white workers having the greatest access. Hispanic workers in the 25 to 31 segment had the lowest access rate, but also saw the greatest improvement, from 44 percent to 51 percent.

Improved participation rates were seen in white, Hispanic, and African American workers.

How accurate is SIPP data?

The accuracy of Census Data on retirement participation rates has come into question in recent years. Analysis from the Bureau’s own economists shows the Current Population Survey under-reports retirement plan participation.

So too has analysis of SIPP data, which tracks respondents over a three to five-year period.

A 2010 paper from the Social Security Administration found that SIPP data under-reported defined contribution rates by 11 percent when measured against administrative data from the IRS.

Scott acknowledged SIPP under-reports access rates by about 7 percent. IRS data is not open-source. Consequently, Pew and other researchers are limited to using publicly available data. Pew is in the process of accessing IRS administrative data, which it will use to update its research, Scott said.