Study Reveals Opportunities to Improve the Retirement Savings Rates of U.S. Employees
An employee benefits package that includes a retirement savings plan is a key tool employers use to attract and retain top talent. Over the past 30 years, more companies have moved from offering defined benefit plans to defined contribution plans in order to help reduce risk and control costs. Yet, if employees do not elect to contribute to the plan or contribute too little too late, employers are not providing the security they sought to offer as a benefit. To discover whether employees are taking advantage of such benefits and at what rate, the ADP Research Institute®, a specialized group within ADP, studied the retirement savings behaviors of approximately 9 million active employees in 2013 differentiated by age, gender, compensation level and industry. The study delves deeply into aggregated, anonymous payroll data, highlighting retirement savings insights and opportunities for employers, benefits administrators, retirement advisors, and others to help increase the retirement savings rate of U.S. employees.
The Closer Retirement Looms, the More Employees Saved
The study found that 60 percent of full-time employees saved for retirement at a rate averaging 7 percent. As employees aged and drew closer to retirement age, a higher proportion of them saved and they saved at a higher rate. Yet, when workers try to “catch up,” the advantage provided by compounded earning over time has passed them by. The pattern of older workers saving more than younger workers was true for both
Retirement Savings Behavior Varied Widely by Industry
The proportion of employees saving, and their savings rates, varied widely by industry sector. The leisure and hospitality sector had the lowest percentage of workers saving with about 37 percent and one of the lowest savings rates at 6.3 percent. In contrast, 70 percent or more of workers in the financial and information industries saved for retirement, and their savings rates were among the highest. The variation in savings may reflect the variation in compensation levels across industries. A large proportion of those working in the leisure and hospitality sector earn lower wages than in finance, for example.
Larger Proportion of Employees at Large Companies Saved But those at Small Companies Saved More
In every industry sector, as the company size increased, so did the proportion of employees saving. In some cases, the difference between small and large companies was as much as 36 percentage points. This discrepancy may reflect retirement programs and online resources that are more commonly offered by larger companies and may be impacting participation. In smaller companies, employees often must initiate and independently monitor their own retirement savings. It is noteworthy to point out, however, that the data reveals that employees who work for larger companies tended to save at lower rates than employees who work for smaller firms.
Employee Compensation and Gender is Linked to Higher Retirement Savings Rates
The study showed dramatic differences between lower- and higher-income groups when it comes to retirement savings. Overall, more of those in higher compensation groups saved, and they saved at higher rates. When considering compensation groups individually, research showed more females saved for retirement and at a higher rate than males in most compensation categories.
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