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    Nov 18th, 2006 401k Leads USA's Private Retirement Plan List

    A study conducted by the Investment Company Institute found that 401k Retirement Plans are the #1 Retirement Saving Investments made by working people in the USA. This study comes at a time when 401k plans are turning 25 years old (the official birthday of 401k plans is on November 10, 2006).

    401k Retirement Plans now have 47 million active participants, which is more than double the size of Private Defined Benefit Plans that have about 21 million active participants. 401k Plans currently hold $2.4 trillion in retirement assets (liquid cash and investments) while private defined benefit & pension plans hold $1.9 trillion.

    The study says 401k Plans have come a long way and have been through a lot of resistance and modifications. For example in 1982, an average worker + employer could contribute $45,475 a year combined. Then in 1983, the Federal Government reduced this to $30,000 due to fear that lots of tax revenues will be lost to 401k contributions.

    ICI Senior Economist Sarah Holden (Co-Author of this study) quotes, "The 401k system has thrived despite complex rules and an often unfriendly climate in Washington. The fact that it has grown to today's scale, in the face of those limitations, is testimony to the advantages that workers and employers see in this flexible and innovative retirement savings plan."

    Other Data from the ICI Study

    • 90% of all offered 401k Plans are the ONLY plans offered by those employers. In 2002, 350,000 employers across the United States offered 401k Plans as the only retirement savings vehicle to their employees.

    • 401k Plans are favoured by young people in the workforce as they do not require many years of work service (which is required for Defined Pension Plans).
    • Mutual funds take up 1/2 of the investment portfolio that 401k managers use to invest their saver's money into. This is because mutual funds are managed by professional managers who have years of experience.
    • In conjunction with the Employee Benefit Research Institute, the ICI study found that more than 50% of today's young retirement savers could have as much as 50-60% of their pre-retirement income (gross wages) at the age of 65 if they invest in the right diversified set of investments.
    • The Pension Protection Act of 2006 brought about favourable reforms for retirement savers by increasing the annual IRA contribution limits, making permanent the concept of 401k catch up contributions for workers over the age of 50, etc.
    About Investment Company Institute
    Research Study: "401k Plans: A 25-Year Retrospective,"
    About ICI: Provides Statistical data on economic conditions and the US Retirement & Education Savings market.
    Website: www.ici.org
     

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