| CHICAGO
A cashier holds hundred dollar bills up to the light on the Thanksgiving Day holiday in Manchester, New Hampshire November 22, 2012. REUTERS/Jessica Rinaldi
The Great Recession took any number of wrecking balls
to the retirement security of American workers, including wages and pension
benefits, home equity and savings. But one of the less understood areas of hurt
continues to this day: part-time work.
The recession pushed the U.S. part-time labor force to
20.1 percent in January 2010 from just under 17 percent, and it remains high
today at 18.3 percent of the workforce, according to Bureau of Labor Statistics
data.
New research from the Pew Charitable Trusts shows who
that trend is hurting most when it comes to saving for retirement: young
people, Latinos and African-Americans.
These workers tend to be employed in “lower-hour”
industries where part-time work is more prevalent, including retail trade,
arts, entertainment, recreation, hospitality and food service. And they are far
less likely to have a retirement plan - or other benefits, such as health
insurance and paid time off.
The availability of a workplace plan is a key
component of success in building savings for retirement. Often, enrollment is
automatic when workers start new jobs, as are the pretax contributions that
follow. “It’s all about providing access,” said John Scott, director of Pew’s
retirement savings project. “For the most part, people take advantage of the
opportunity to save if it’s easy.”
For young people, lack of access is especially
troubling because getting an early start on retirement saving is the financial
equivalent of low-hanging fruit. The magic of compounding means that early
starters can do more with less, accumulating savings with lower contribution
rates.
For minority workers, the access problem is a key
driver of retirement security later in life - namely, the yawning racial divide
in retirement savings that has been evident for years. Savings among nonwhite
households near retirement (age 55-64) average $30,000 - four times less than
white households, according to the National Institute on Retirement Security.
Pew’s research, based on U.S. Census Bureau survey
data, found that 56 percent of part-time workers in lower hour industries do
not have access to a 401(k) or other retirement plan, compared with just 29
percent of fulltime workers in higher hour industries. And when a plan is
offered, participation rates also are lower than average for part-time workers.
CLOSING THE GAP
The gaps affect millennials and minorities
disproportionately. Nearly 39 percent of millennials work in lower-hour industries,
compared with 20 percent of older workers. Meanwhile, 28 percent of Hispanics
and 26 percent of African-Americans work in lower hour jobs, compared with 23
percent of whites.
The gaps could close somewhat if the economy continues
to expand, creating more full-time jobs in high-hour industries, such as
manufacturing, construction, technology, education and healthcare. But policy
advocates also have called for structural changes to workplace savings plans to
encourage higher coverage rates for part-time workers.
A study by the U.S. Government Accountability Office
(GAO) published in October noted that even long-term part-time workers can be
excluded from retirement plans if they work less than 1,000 hours annually
(about 19 hours weekly). The Obama administration proposed in its 2017 budget
to drop that ceiling to 500 hours annually over a three-year period.
The GAO's study concluded that plan rules on
eligibility and vesting pose a significant barrier that should be tackled
through reforms of the Employee Retirement Income Security Act (ERISA). For
example, “last day” rules used by some plans require workers to be employed on
the last day of the year to receive an employer match. And some plans prohibit
participation by workers younger than 21 years old.
GAO also urged Congress to consider re-evaluation of
rules on vesting in light of rising workforce mobility. The report found, for
example, that if a worker leaves two jobs after two years, at ages 20 and 40,
where the plan requires three years for full vesting, the employer
contributions forfeited could be worth $81,743 at retirement (in future
dollars).
Finally, improving overall availability of workplace
saving should be a priority, since roughly half of all workers have no access
to a workplace retirement plan. Some states, led by California and Illinois,
are creating their own programs for uncovered workers that would require
employer participation (reut.rs/2dAT4pW).
In September, the Senate Finance Committee sent
legislation to the full Senate (the Retirement Enhancement and Savings Act of
2016) calling for changes to ERISA to allow employers from different industries
to band together to create “pooled plans” as a way of reducing expense and
administrative burdens of plan sponsorship.
If you are curious about how retirement coverage
stacks up where you work, check this interactive tool created by Pew
((bit.ly/1Ps88zT), which lets users visualize retirement plan access and
participation rates by a variety of factors, including age, gender, state, income
level and industry.
(The opinions expressed here are those of the author,
a columnist for Reuters.)
(Editing by Matthew Lewis)
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