Retirement-account participation flattens

October 21, 2011

| Money Rates Columnist

New figures find that after growing strongly through the 1990s and early 2000s, participation in 401(k)-type retirement savings plans has leveled off in the wake of the struggling economy.

The new study by the Employee Benefit Research Institute blamed the recession for the lackluster growth in 401(k)-type plans, including 403(b) savings accounts for public school employees, 457 plans for nonprofits and similar defined-contribution plans.

According to the EBRI, participation in these retirement savings accounts increased from 23 percent in 1996 to 33.1 percent in 2005. But in 2009, the percentage remained stuck at the 33 percent plateau.

The study attributed the stagnation to the struggling economy between 2005 and 2009, as unemployment reached its highest levels in two decades, housing values fell despite low current mortgage rates and the stock market took a turn for the unsteady.

Economists and policymakers carefully monitor participation and growth in 401(k) plans because they have become the primary retirement savings accounts vehicles for American workers. What worries them, as the EBRI noted, is that a majority of American workers between 21 and 64 years old aren't participating in these savings accounts and are facing retirement without the financial resources to maintain their current standard of living.

The best savings accounts for retirement are started early in a worker's career and are built up continuously, allowing an investor to benefit from long-term gains in the stock market.

The EBRI study also noted that contributions to individual retirement accounts declined over the same period. Workers making tax-deductible IRA contributions increased from 5 percent in 1996 to 6.2 percent in 2005, but has since dropped to 5.4 percent, according to the EBRI study. The percentage making the maximum allowable contribution to an IRA declined from 66.4 percent in 1996 to 22.8 percent in 2009.

Despite the lackluster participation rates, retirements savings accounts in the U.S. held more than $8.5 trillion in assets last year, an increase in the overall assets levels. More than 67 million Americans participate in 401(k)s or some other defined contribution retirement savings account.

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