The Prevalence of Employer-Funded Retirement Plans in the US – 2021 Examine

The picture shows a pensioner looking at a laptop and papers to check her pension benefits. SmartAsset conducted a study of the prevalence of employer-funded retirement plans in the United States

According to a recent report from Fidelity Investments, the average US 401 (k) balance reached $ 123,900 in the first quarter of 2021. This is more than 70% up on the average balance of 401 (k) a decade ago ($ 72,800). But while balances are rising for those with 401 (k) s, a significant number of workers in the United States – by our estimates using Bureau of Labor Statistics (BLS) data – nearly 50,000 – do not have access to a 401 (k) or another employer-funded retirement plan.

In this study, we take a closer look at employer-funded retirement benefits in the United States. Specifically, we consider access, participation and utilization rates. The enrollment rate is the percentage of workers with access to a plan who also choose to participate in the plan. We examine these rates over time and examine the differences between the different types of plans (i.e. defined benefit versus defined contribution). Finally, we examine how employer-funded retirement benefits differ by occupation. For details on our data sources and how we assemble the information to create our findings, see the Data and Methodology section below.

Most important findings

  • The admission rates are falling slightly. From 2010 to 2020, the number of employees who had access to an employer-sponsored pension plan and who chose to participate decreased by two percentage points from 80% to 78%. In five of the nine occupational groups examined, the admission rate also fell, most of all among salespeople (66% to 60%) and installation, maintenance and repair workers (84% to 78%).

  • Access to retirement benefits is lowest among service workers. In 2020, only about 46% of service workers in the United States had access to employer-funded retirement benefits. In addition, fewer than seven in ten service employees who have access to these services chose to participate.

  • The professional gaps are widening. In 2010, 86% of those employed in management, business and finance had access to employer-funded retirement benefits, compared with just 49% of those in the service sector. In 2020 the spread exceeded 40 percentage points. About 89% of those employed in management, business and finance had access to retirement benefits through their employer, compared to 46% of those in the service sector.

Access, participation and usage rates over time

The story goes on

Over the past decade, the percentage of employees with access to employer-funded pension plans has increased slightly. According to data from the BLS National Compensation Survey, around 71% of civilian employees had access to employer-sponsored retirement benefits in 2020 – two percentage points more than the share of employees with access in 2010.

Although access rates have increased, participation rates have remained stable, which has led to a decline in usage. Fewer employees choose to participate in employer-funded retirement benefits. In 2010, around 80% of employees with access to retirement benefits through work participated in these plans, compared with 78% in 2020. The graph below shows the entry, participation and utilization rates from 2010 to 2020 for all employer-funded pension plans.

The image is a line chart from SmartAsset entitled "Employer Sponsored Retirement Plans: US Access and Participation Over Time."

The image is a line chart from SmartAsset titled Employer-Sponsored Retirement Plans: Access and Participation in the US Over Time.

Plan types: defined benefit vs. defined contribution

Employer-funded retirement benefits fall into two main categories: defined benefit plans – commonly known as traditional retirement plans – and defined contribution plans. In general, a defined benefit plan promises a certain monthly benefit at retirement, while a defined contribution plan does not.

Defined benefit plans typically calculate performance using a formula that takes into account factors such as salary and years of service. In the case of a defined contribution plan, either the employee, the employer or both parties pay into the employee’s individual plan account. The contributions are usually invested and the employee receives the remaining amount in retirement. The types of defined contribution plans include 401 (k) plans, 403 (b) plans, employee stock option plans, and profit-sharing plans.

In general, most employers in the United States offer either a defined benefit plan or a defined contribution plan – but rarely both. In 2020, only 15% of employees had access to defined benefit and defined contribution plans. Meanwhile, 10% of employees only had access to a defined benefit plan and around 45% of employees only had access to a defined contribution plan.

The image is a line chart from SmartAsset entitled "Employee access to employer-sponsored retirement plans."

The image is a line chart from SmartAsset entitled “Employee Access to Employer Sponsored Retirement Plans”.

The prevalence of defined contribution plans versus defined benefit plans marks a significant shift from 40 years ago when the traditional pension plan was much more common. Defined contribution plans have also gained in importance over defined benefit plans over the past five years. In 2015, 12% of employees only had access to one defined benefit plan, 41% only had access to one defined contribution plan, and 16% had access to both.

Today, the intake rate is higher among workers with access to a defined benefit plan. Approximately 81% of civilian workers with access to a defined benefit plan receive these benefits. The admission rate for employees with access to a defined contribution plan is now 71%. The following table shows the differences in entry, participation, and take-up rates by type of plan.

The image is a line chart from SmartAsset entitled "Access and participation: defined benefit plans vs. defined contribution plans."

The image is a line chart from SmartAsset entitled “Access and Participation: Defined Benefit and Defined Contribution Retirement Plans”.

Pension plans by occupation

The BLS publishes access, participation and utilization rates for all employer-financed pension plans according to nine defined occupational categories. Two categories – management, business and finance, and professional and related professions – had access rates of over 80% in 2020. The take-up of retirement benefits is also highest among workers in these two sectors. Around 90% of those employed in management, economics and finance, and around 84% of skilled workers and related workers, chose to participate in the employer-sponsored services offered to them.

Access rates are lowest for service reps, while admission rates are lowest for sales reps. In 2020, fewer than one in two service employees had access to a defined benefit or defined contribution plan through their employer. Although 70% of salespeople received employer-funded retirement benefits, the take-up rate was 60%. The following table shows the access, participation and utilization rates for the nine defined BLS occupations in 2020.

The image is a line chart from SmartAsset entitled "Access to employer-funded retirement benefits by occupation."

The image is a line chart from SmartAsset entitled “Access to Employer Sponsored Retirement Benefits by Occupation”.

Data and methodology

The data for this report comes from Fidelity’s quarterly retirement savings analysis and the Bureau of Labor Statistics (BLS) National Compensation Survey. Fidelity’s estimates are based on an analysis of 23,500 defined contribution plans of the company. For the three sections of the report that use BLS data, we only considered civilian workers, which include private industry and state and local government workers. Federal government, military and agricultural workers are excluded from the estimates.

Tips to Maximize Your Retirement Savings

  • Start early. With a defined contribution plan, it is very important to take advantage of compound interest by planning and saving early. Compound interest can make a big difference. For example, if you invested $ 10,000 early in your career and kept investing $ 10,000 annually, it would grow to more than $ 400,000 in 30 years, assuming a conservative 2% return. Assuming a higher return of 5%, this investment would grow to more than $ 700,000. Check out our investment calculator to see how your savings can grow over time.

  • Maximize your game. Some employers pay 401 (k) contributions up to a certain percentage of your salary, which means that if you choose not to deposit the full amount of your game, you will leave money on the table. Check out our 401 (k) calculator if you need help determining what you’ve been saving for retirement so far and how much more you may need.

  • Combined balances are higher. Fidelity’s report shows that individuals with balances in both a defined contribution plan and an IRA have higher average balances than individuals who save through an annuity fund alone. For the first quarter of 2021, the average combined balance for savers with a company retirement plan and an IRA was $ 375,100. Our article here explains how you can contribute to both.

  • Consider a financial advisor. A financial advisor can help you take better control of your money and make sure you are on the right track for retirement. SmartAsset’s free tool puts you in five minutes with financial advisors. When you’re ready to be matched with local advisors who may be able to help you meet your financial goals, get started now.

Questions about our study? Contact us at press@smartasset.com.

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