Saving for retirement is essential for maintaining a standard of living upon reaching old age. However, not everyone participates in their employment-based retirement plans, and according to a new report from the Employee Benefit Research Institute of Washington, the probability of participation is affected by demographic factors like gender, race, class, firm size, education and geographic differences.

The percentage of all workers participating in an employment-based retirement plan was 41.9% in 2004, up from 41.8% in 2002.

"Being non-white, younger, female, never married, having lower educational attainment, lower earnings, poorer health status, no health insurance through one's own employer and not working full time or full year were all associated with a lower level of participation in a retirement plan," according to the EBRI report.

Workers at smaller firms, private-sector firms and firms in the personal service industry are less likely to partake in a retirement plan. The geographic location of workers is a factor, too. Those in the South, the West and the Southwest in particular, are less likely to participate in a plan than workers in other regions of the country.

Females between the ages of 21 and 64 participate in a retirement plan at a lower level than males but female full-time and full-year workers of these same ages had a 58.2% participation rate in a plan, as opposed to 55.4% for men.

Of all worker status categories, women were more likely to participate in a retirement plan. When looking at participation based on what people make, the percentage of higher-earning females participating in a plan was also higher than higher-earning males participating in a plan. Among males and females earning $50,000 or more, 74.9% of females contribute to their retirement plan, versus 72.4% of males.

Overall, however, the aggregate participation was lower for women because female workers earn less or work fewer hours than males.

Through analysis of race by earnings level, EBRI was able to deduce that Hispanic wage and salary workers were less likely than both black and white workers to participate in a plan. There is not, however, a very large gap between black and white plan participants, when compared across earning levels. In fact, among workers earning between $30,000 and $39,999, black workers had a higher level of participation (63%) than both whites (61%) and Hispanics (44%).

Hispanic workers had significantly lower participation rates in employment-based retirement plans than all the other races, but their participation rates improved to nearly the level of blacks' if they were born in the U.S. Non native-born Hispanics had lower levels of participation across all age groups, probably due to a language and custom barrier, EBRI said.

Employer size also impacts participation rates by various races. For workers at the smallest companies, those with 10 or fewer employees, 18% of whites participated in a plan, while only 7% of Hispanics participated. In companies with more than 1,000 employees, 64% of whites participated in their plan, while only 42% of Hispanics participated.

EBRI also studied differences in participation at various firm sizes. Employees at firms with few employees were less likely to participate in a retirement plan. A possible explanation for this could be that small firms employ workers "with characteristics associated with lower participation, such as being younger or lower paid."

But even higher-paid employees at small companies have a far lower rate of retirement plan participation than at large companies. Of the workers making $50,000 or more, 31% at small companies contribute to their retirement plan, compared to 83% of those at companies with more than 1,000 employees. One reason could be that small companies do not offer a retirement plan. The economic climate and the cost of administering a plan are major factors that determine whether small firms administer a retirement plan, according to the 2003 Small Employer Retirement Survey.

Workers who are less educated have lower levels of plan participation. For example, 52.4% of employees without a high school diploma, making at least $50,000 participated in a retirement plan, as opposed to 66.2% with a high school diploma earning $50,000.

Geographic location also impacts the probability of retirement plan participation. Arizona, California, Florida, Georgia and Utah were the states with lowest participation rates. Connecticut, Delaware, Iowa and Minnesota were among the states with the highest participation. Midwestern and northeastern states had higher participation rates, whereas southern and western states had lower levels of participation.

In sum, 41.9% of all workers, or 63.9 million Americans participated in an employer-based retirement plan in 2004. After two straight years of declines in 2001 and 2002, with 3.5 million Americans dropping out of their employer-based retirement plans, participation increased slightly in 2003, with 300,000 Americans opting back in, and in 2004, with 400,000 returning to these plans. Looking ahead, the number of small companies offering defined contribution plans will have a great impact on participation rates, as most large employers already offer such a plan.

(c) 2005 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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