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 full-time 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.
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.