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By CYRIL TUOHY, managing editor of Risk & Insurance®

Fewer than four out of 10 workers--39.6 percent--took part in an employer-sponsored retirement plan last year, the latest analysis of data shows.

It's not as if workers, however, made a conscious decision to walk away from contributing a plan. In some instances, companies did it for them.

The percentage of employers sponsoring retirement plans also dropped to 61.8 percent in 2009 for full-time, full-year wage and salary workers, down seven-tenths of a percentage point from 2008, EBRI said.

EBRI's latest data "clearly reflects the economic situation," said Stephen Blakely, director of communications for EBRI in Washington, D.C.

Craig Copeland, senior research associate at EBRI, added that the trend has "important implications" for workers. The more a worker contributes now, the greater the amount of money a worker is likely to have in retirement. Conversely, fewer payments today into defined contribution plans like 401(k)s mean smaller payouts in the retirement years.

Workers willing to contribute to an employer-sponsored plan haven't always been able to do so. Some employers have frozen their contribution plans. In other cases, companies have gone bankrupt altogether, victims of the Great Recession. Still other companies, small ones in particular, don't offer any kind of retirement plan.

Part-time workers--a segment of the working population that tends to rise during a recession, along with employees who work only part of the year--also have lower participation rates in employer-sponsored plans, according to studies by the Congressional Research Service.

The downward trend of participation in employer-sponsored retirement plans is likely to continue this year, EBRI analysts said.

The unemployment rate in 2010 remains stubbornly high at around 10 percent, and many large private-sector employers have over the past few years scaled back or done away with the traditional defined-benefit pension plans.

They include Aon Corp., Motorola, Sears, Talbots Inc. and IBM Corp., according to data collected by the Pension Rights Center, which protects and promotes retirement security for workers.

On the brighter side, even with slow recovery, firms of all kinds that reduced or eliminated their match on defined contributions in the past two years have decided to contribute once more.

They include the financial services giant American Express, the professional services firm LECG Corp, the engine maker Briggs & Stratton Inc., and the telecommunications company Cincinnati Bell Inc., according to the Pension Rights Center.

The state of the economy is likely to be an important factor, if not the most important factor, in whether participation in employer-sponsored retirement plans increases once again.

Another factor is how employers and workers respond to the automatic enrollment provisions for 401(k) retirement plans, which were encouraged by the Pension Protection Act of 2006 that went into effect during the economic downturn of 2008, EBRI said.

As the economy recovers and companies ramp up their plans again, more workers will participate in the plans, thereby boosting participation averages.

The latest numbers on retirement-plan participation should come as no surprise. They reflect a long-term trend in the declining participation in such plans, according to federal statistics.

Workers who expect to work longer because they can't afford to retire may eventually be in for a rude surprise, Blakely said.

Separate EBRI research has found that in many cases retirees leave the workforce before they planned because of a layoff or for health reasons.

"The alleged safety valve of working longer will not necessarily be there," Blakely said.

October 19, 2010

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