A recent Spectrem Group survey comparing savings rates among individuals who participate in 403(b) retirement plans with their 401(k) counterparts overlooks important differences in retirement plan availability and design in higher education that can contribute to better outcomes for individuals who work in the academic and research fields than employees who participate in employer-sponsored retirement plans generally, regardless of the specific plan type.1 These include:
Retirement plan participation — Retirement plan coverage is much greater in higher education than in the private sector: 59% of the working population report that their employer sponsors some type of retirement plan, while 85% of higher education faculty report that their college or university sponsors a retirement plan.2 Moreover, in higher education, when the primary retirement plan is a defined contribution 403(b) plan, participation is typically mandatory for individuals. This contrasts sharply with 401(k) plans, in which nearly a quarter of employees eligible to participate do not.
Employer and employee contributions — In many higher education retirement plans, the employer and employee contribution is mandated by the plan itself. In addition, many higher education institutions offer employees an option to contribute additional discretionary amounts to a supplemental plan. This contrasts sharply with most 401(k) plans, in which workers can decide to contribute nothing to their retirement plan and thus be ineligible to receive whatever matching contribution their employer may offer. Had the Spectrem survey counted individuals eligible to participate in their employer's 401(k) plan but who do not enroll, participation in 401(k) plans is, on average, lower than the survey suggests.
General comparisons obscure key differences — As suggested above, comparing all 401(k) participants with all 403(b) participants obscures important differences in plan design and participation among varied employers. Comparisons of savings and participation rates also can vary greatly unless one controls for such factors as individual rates of tenure in retirement plans, age, and salary.
The TIAA-CREF Institute's Retirement Confidence Survey of College and University Faculty affirms that America's higher education faculty are confident in their prospects for retirement and, relative to all working Americans, are doing a good job preparing for retirement.3 Among higher education faculty, 35% are very confident in their retirement income prospects and an additional 51% are somewhat confident. By comparison, only 25% of working Americans say that they are very confident that they will have enough money in retirement, while an additional 40% are somewhat confident. Two-thirds of higher education faculty members expect employer-sponsored retirement plans to be their largest source of retirement income.
While higher education faculty members tend to be older, have higher incomes and higher educational levels relative to the general working population, they also benefit from the retirement systems in place within the higher education community.
1"403(b) Participants Accumulate Less Retirement Savings than 401(k) Participants," PLANSPONSOR.com, August 27, 2008.
2See http://www.tiaa-crefinstitute.org/research/trends/docs/tr103105.pdf (PDF), page 5.
3See http://www.tiaa-crefinstitute.org/research/trends/docs/tr103105.pdf (PDF)
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