Half of workers lack access to payroll deduction plan, deemed key to retirement security

Employee access to a payroll deduction plan improves retirement security, yet about half of working Americans lack access to such a plan, according to a new analysis of Census Bureau data by the AARP.

About half of working Americans lack access to a payroll-deduction workplace retirement savings plan, and a monthly check from Social Security is not enough to provide financial security, according to the data.

Payroll deduction is a proven way to help employees save for retirement, AARP said. Employees are 15 times more likely to save for retirement if they have access to a payroll deduction savings plan at work, research shows.

A recent unrelated survey found that retirees are less likely than in previous years to say they are “better off than expected” in 2024, with retirement income and unexpected financial hits topping their list of concerns.

“Retirement savings success comes from consistently saving small amounts over a long period of time. Investment returns help those amounts to grow, eventually producing enough to supplement a person’s Social Security benefits,” the AARP said about its analysis. “Without payroll deduction savings plans, and the features that often accompany these benefits, such as automatic enrollment, people rarely save enough regardless of their best intentions.”

Small businesses are less likely than larger ones to offer payroll-deduction plans. Almost 78% of workers in firms with fewer than 10 employees, and about 64% at companies with 10 to 24 employees, lack a plan, according to the AARP.

“However, even among very large employers with more than 1,000 workers, over one third of employees do not have access to an employer sponsored retirement plan,” the organization said.

Additionally, the AARP found that access to payroll-deduction retirement plans varies from state to state. Florida had the highest proportion of a workforce without a retirement savings (60%) program, whereas Washington, DC, had the lowest (31%). Other states with more than half of all workers lacking coverage included Georgia (54.1%), Mississippi (54.1%), Texas (53.4%),New Mexico (52.3%), Nevada (52.2 %), California (52.1%), Arizona (51.8%), Alabama (51.6%), Oklahoma (51.3%) and New York (51%).

“While Social Security remains the bedrock of American retirement security, almost all workers will need additional resources to supplement that income and provide money for unexpected expenses. This challenge can be addressed by requiring all employers to offer their workers a retirement benefit of some type,” the AARP concluded.

The research results were based on an analysis of Census Bureau data using methodology published by the Wharton School of the University of Pennsylvania and developed by a former Federal Reserve expert to provide the most accurate estimates of who does not have access to a workplace retirement plan.