Retirement Plan Participation Falls

The Employee Benefit Research Institute, the definitive source of data on retirement plans, reports that in 2006 only 50.6% of private sector wage and salary workers between 21 and 64 worked for an employer sponsoring an employee retirement plan, and only 40.3% participated in a plan. This is down about 2% from 2004. Participation is higher for those with higher incomes and education, non-Hispanics, and whites. Among people working for employers with 100-499 employees, 51.4% worked for a company with a plan, rising to 57.1% in employers with over 1,000 employees. But only about 40% of employees in companies with fewer than 100 employees worked for a company with a plan.

The numbers emphasize a sometimes unappreciated point about ESOPs, particularly when people worry over their lack of diversification. Employees who do work for an ESOP company at least have one retirement plan available, and usually a second one as well. Moreover, in an ESOP, generally all employees meeting minimum service requirements participate, whereas in 401(k) plans, employees have to make contributions to participate. Finally, ESOPs do not base employer contributions on employee deferrals, which tends to skew benefits upwards, but on relative pay or more level formulas.