Most millennials don’t save because their employers don’t let them

Benefits not included.
Benefits not included.
Image: Reuters/Shannon Stapleton
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Only a third of working millennials in the US are contributing to a retirement plan, according to a  new report (pdf) from the National Institute of Retirement Security (NIRS).

Without such savings, they face a difficult financial future in their 50s and 60s as few, if any, will be the beneficiaries of traditional pension plans, which companies are phasing out. Payments from the government’s Social Security program are likely to be delayed and reduced. In contrast, 51% of Generation Xers and baby boomers contribute to their own retirement plans.

The poor participation of millennials in such plans isn’t because they don’t try to save or invest. Many simply have jobs that don’t offer retirement plans of any sort, or haven’t worked long enough to qualify. Employers usually require new employees to stay with the organization for at least a year before allowing them into retirement plans. That should change, said Jennifer Brown, head of research at NIRS, because it’s critical to save for retirement as early as possible to allow savings to compound.

“If we fix some of these eligibility issues, we can raise the generation’s participation rates,” Brown said in an interview. ”When you see millennials move from job to job, they are usually moving to get better benefits.” Individual employees under 50 years old can contribute up to $18,500 in tax-free earnings into company-sponsored 401K plans this year.

Two-thirds of millennials do work for an employer that offers a retirement savings plan, but only 55% of that group are eligible to participate, NIRS found. Of that 55%, a whopping 94% do participate, the same as Generation Xers and boomers.  In 2014, more than half of millennials had spent a year or less with their current employers, according to NIRS.

Millennials are more likely to be employed part-time than workers of other generations, and part-time employees are less likely to qualify for job benefits.  Companies can require employees to work a certain number of days to qualify for a retirement plan, or offer different plans to different kinds of employees. The Employee Retirement Income Security Act (ERISA) allows employers to limit benefits to those who work at least 1,000 hours a year.