Retirement & Financial Planning Report

One way the federal government’s retirement program is superior is that it provides more financial security to lower-income workers – simply by being in place – than many private sector workers of similar incomes receive, a report has found.

The Center for Retirement Research found that of lower-income workers–which it defined as those earning below 300 percent of the poverty line–only 60 percent have retirement programs available to them through their jobs.


An additional hindrance to private sector workers is that many of the retirement programs that do exist for them are of the defined contribution type only, which requires the employee to personally invest in order to receive the most benefit, including maximum employer contributions. Many of them simply can’t afford to make those investments, it said, and thus don’t get full advantage even of those programs.

Said the report: “Going forward, as defined benefit plans disappear from the private sector, low take-up rates will also become a significant contributor to low coverage rates among older work-ers. Overall, these findings suggest that the most potent approach for boosting pension participation would be requiring employers to offer all workers access to a retirement saving plan that includes auto-enrollment.”

In contrast, the federal government offers both a defined benefit (FERS or CSRS) and a defined contribution (TSP) program to all workers, regardless of income levels. The consideration regarding ability to make investments in the TSP is much the same, however–TSP data show that lower-income employees invest at lower rates. But even from that aspect, the government does pay an automatic contribution equal to 1 percent of salary for FERS employees regardless of whether they invest personal money. It also automatically enrolls new employees.