Move to 401(k)s Hurts Less Educated Workers, Study Finds

The transition from pensions to 401(k) plans has led to a reduction in retirement savings rates among high school graduates and dropouts compared to college graduates, according to new research presented by University of Kansas sociology professor ChangHwan Kim and Social Security Administration researcher Christopher Tamborini at this week’s American Sociological Association’s Annual Conference.

In 1980, 38 percent of private sector workers had a pension and 19 percent a 401(k). By last year, according to the U.S. Department of Labor, the numbers had more or less reversed —just 15 percent had a pension and 43 percent a 401(k).

By analyzing surveys linked to W-2 tax data, the researchers found that college graduates are more likely to have jobs that offer retirement plans, and they are more likely to sign up for, and contribute to, a 401(k).

Workers with high school diplomas, on the other hand, often have lower wage jobs that don’t offer retirement plans, said the researchers. If their employer offers a 401(k) plan, high school graduates don’t take advantage, because they can’t afford to put funds into a retirement account, or they don’t understand how the accounts work.

In response, more states are passing legislation requiring employers without 401(k)s to sign up workers for state plans, with the goal of ensuring employees can save for retirement without filling out confusing paperwork. The next state to approve such a plan could be the largest: California lawmakers could vote as early as this week to create what’s known as the Secure Choice Retirement Savings Program. Read the full article written by Bloomberg’s Ben Steverman.