When is a participant not a participant?

When is a participant not a participant?


As I was reading the most recent edition of the Private Pension Plan Bulletin Abstract of 2007 Form 5500 Annual Reports [PDF], published by the Labor Department’s Employee Benefits Security Administration, I noticed something rather odd in one of the footnotes. In its definition of “participant,” the Bulletin includes “individuals who are merely eligible to elect to have the employer make payments to a 401(k) type plan.” 

This report, which provides an abundance of information about our nation’s pension and retirement savings plans, counts as a participant anyone who has the opportunity to participate in an employer’s retirement plan, even if they are not participating. Something about that seems a little off to me. Participants are generally thought of as individuals who are actually contributing to their employer-sponsored retirement plans.

This is akin to saying that anyone who has an opportunity buy a lottery ticket has not only bought a ticket, but won the lottery. As John Turner of the Pension Policy Center explains, this is a recent change, made only two years ago. He notes that the definition “now includes workers with zero account balances as active participants. These are workers who have never contributed to a 401(k) plan sponsored by their employer, and whose employer has never contributed for them.

If this was a small number of workers and if the statistic was of little interest, this issue would be inconsequential. In fact, the number is in the millions and this is a key statistic that is widely cited and widely used by policy analysts, the media, and Members of Congress. For people who understand the new definition of the statistic, the statistic is rendered useless. For people who do not understand, the statistic provides a false positive impression of private retirement plan coverage in the United States.”

I hope EBSA changes the way it defines who is – and who isn’t – a participant in retirement plans. Without this vital change, many Americans will have a skewed view of just how many people are saving for retirement.

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