January 4, 2007

Individuals working in education, government or health care have less saved for retirement in defined-contribution plans than their peers who work in the private sector, according to a survey by Fidelity Investments.

Although pay levels for these workers are comparable to those of corporate employees, the average individual in what is known as the tax-exempt workplace has saved an average of $48,000 through a defined contribution plan, 23% less than the $62,000 put away by the average in private sector worker, Fidelity says.

That's partly attributable to the fact that many tax-exempt workers still have pensions and may not feel the need to save as much on their own. But even then, the average tax-exempt sector worker still lags the private sector worker. Those with a defined benefit plan have saved an average of $47,405 while those with out a pension plan have put away an average of $54,898, Fidelity says. In Fidelity's survey, 55% of respondents had access to a pension plan.

Hampering savings among workers in the tax-exempt world is that the plans in which they can invest, which are known as 403(b) or 457 plans, often have many plan providers to choose from than corporate 401(k) plans, which can confuse participants. "They may be able to choose from any number of record keepers and may not even know what all their investment choices are," says John Begley, an executive vice president with Fidelity Employer Services Company, a unit of Fidelity that sells benefits and human-resources services. "All those choices can get overwhelming."

In contrast, corporate 401(k) plans typically have just one plan provider offering investment options.

Meanwhile, the survey found that many of those with pension plans were not optimistic about the future of their defined benefit plan; 57% feared their pension plan would be reduced or discontinued in the future.

On the positive side, the survey estimated that 83% of tax-exempt workers participate in a defined contribution plan, compared to 64% in the corporate sector. That may be due to nearly one in four tax exempt workers can receive an employer contribution toward a retirement account without having to make contributions on their own.

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