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Benefits Survey Shows 401(k) Remains Popular Despite Downturn

The WorldatWork-American Benefits Council survey of 505 employers shows 74 percent have not changed the amount they contribute to their workers’ 401(k) retirement accounts in the last 12 months, and they are not planning to do so in the future.

March 17, 2009
Companies and employees remain faithful to defined-contribution retirement plans despite a brutal recession, according to a new report by two Washington-based benefits groups that hope the results will help shape Congress’ approach to retirement security policy.

A survey of 505 employers shows 74 percent have not changed the amount they contribute to their workers’ 401(k) retirement accounts in the last 12 months, and they are not planning to do so in the future.

Another 6 percent are considering a decrease, while 3 percent have eliminated the match and another 2 percent have decreased it. On the other hand, 6 percent of respondents are weighing an increase in the match.

The survey was conducted in December by WorldatWork, a global human resources association focused on compensation and benefits, and the American Benefits Council, a national trade association for mostly large companies that concentrates on federal legislation and regulation of benefits.

Company members of each organization participated. About 66 percent of the respondents said at least 70 percent of their eligible employees had a 401(k) plan in 2008. More than half of employees contribute 5 to 7 percent of their pay to the 401(k) plan. Half of employers offer a 3 to 4 percent match.

But the severe economic downturn is having an impact on 401(k) plans. Nearly half of the companies in the survey reported the number of hardship distributions and loans taken out of retirement accounts has increased.

Still, the benefits groups hailed the results as evidence that Americans are not abandoning retirement saving during the recession.

“The plans are stable,” said Lynn Dudley, vice president for policy of the American Benefits Council, at a National Press Club press conference on Tuesday, March 17. “These plans are working. Employers are committed to them. Employees are committed to them. They are very, very popular.”

That is a message that Dudley will deliver to members of Congress and their aides. In recent weeks, both House and Senate committees have held hearings on retirement policy.

In the previous Congress, legislation targeting 401(k) fee transparency made it out of one committee but did not gain congressional approval. Other proposals, like automatic payroll deductions for IRA accounts, also were considered but not passed.

Retirement security deliberations are just starting on Capitol Hill, according to Cara Welch, director of public policy at WorldatWork. She said that congressional staff members welcomed the report and the context it provides.

“Everyone was excited to get up-to-date data so they could plug that into their discussions,” Welch said.

Congressional concern about retirement plans is stoked by devastating stock market losses and doubts about the ability of average investors to choose their retirement portfolio wisely.

Dudley urged lawmakers to build on the current system of defined-contribution accounts like 401(k)s, which are used by about 66 million workers, and defined benefit pensions.

“The long-term challenge we face as a country is to help people have dignity in retirement,” Dudley said. “Policymakers are looking for ways to do that.”

—Mark Schoeff Jr.

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