"They" Just Don't Get It

In places far far away discussions focus on how not every 401(k) account is invested as “they” would invest it, how not every 401(k) participant saves what “they” define as enough, and how the 401(k) system does not deliver for every American an amount “they” define as adequate. These faraway places where “they” are are nothing like the America where most of us work and live.

For example, the April 30, USA Today article “Workers Fight Uphill Battle on 401(k) Retirement Savings” includes in its opening “But the bear market and recession have also realized some of the shortcomings of a 401(k) plan. The markets can slash even a conservative portfolio in half. Companies can stop or reduce their matches. And a plan with a low participation rate can put tough limits on how much you can save.”

In reality few had their balances cut in half and certainly not those with a conservative portfolio. Fixed investments in 401(k) plans are nearly all invested in stable value funds, which not only held their value but continue to pay returns significantly above money market rates. Also, most participants who opened their March 31 account statements found that their 401(k) account balances had reached new highs.

While companies can stop or suspend their matches, only approximately 15% did so – an amazing 7/8’s glass full response -- this when companies were cutting back on everything else. Also, not a single viable company terminated its plan during this period.

Low participation rates do cut back the amounts that can be saved but only for those making over $110,000, a very small percentage of the workforce. Further, counter-intuitively at least to those in the far away lands, overall savings rates have not fallen. They have increased. For those in the plan of one large recordkeeper, seven percent of participants had increased their savings rate while three percent reduced it during this period. The average participant contribution rate is now approaching eight percent.

Instead of celebrating the fact that 401(k) participants have successfully survived the recent financial turmoil, the April 30th 401(k) article and others like it and academic studies everywhere continue to portray darkly our most successful wealth accumulation program for America’s middle class. Fortunately, despite the doomsayers, many employers continue to find ways to help their employees save for retirement, even as their firms struggle with current economic challenges. And employees understand, appreciate and are better prepared for retirement by taking advantage of saving in their company's 401(k) Plan.