It’s hardly big news anymore to report that American workers aren’t doing a very good job of saving for retirement. But just how big a problem this represents hasn’t been carefully studied, until a new analysis done earlier in 2017 which showed that the problem of “401(k) neglect” is even worse than previously thought.
That’s the conclusion from this article which was published some months back on the website of Bloomberg. In the largest study ever of retirement plan participation, researchers from the U.S. Census Bureau reviewed tax data to come up with the most accurate picture to date to show how many employees take part in work-based 401(k) retirement savings plans. These researchers studied the W-2 tax records from 155 million workers representing more than 6 million employers. What they discovered showed that retirement plans are available to more employees than previously thought – but the total number of participating employees is even less than other surveys have indicated. The bottom line is that only about one-third of U.S. workers are contributing to workplace 401(k) accounts in spite of the fact that such plans are presently being offered to nearly 8 workers out of 10.
The actual number of different companies who offer retirement savings plans to their workers remains surprisingly low – only about one company in seven. That’s because so many of these firms are small businesses. For example, the Census Bureau data showed that fewer than half of all companies employing between 50 and 99 workers offer 401(k) plans compared with about 85 percent of companies with 500 to 1,000 employees. In the words of Bloomberg, “Want a retirement plan? Work for a big company.” Because they’re so big, those large firms that do offer participatory retirement plans employ about 79 percent of all U.S. workers.
But do these workers take an active role in saving for their retirement? According to the Census Bureau report, about 60 percent do not. That’s a much lower rate of participation than retirement experts had previously thought. And if you add in the workers who are employed by small companies less likely to offer 401(k) plans, only about one-third of American employees are contributing, missing out on tax benefits, savings accumulation and employer matching dollars.
Bloomberg suggests a few reasons why participation rates in 401(k) plans are so low. For one thing, some employees may not be eligible, having joined the firm too recently to earn any company contribution. Others may decline out of ignorance, not knowing how – or why – to sign up. But the biggest reason could be the hardest one to solve: employees are too strapped to set aside any money in savings. “Any effort to get workers to save for retirement faces a daunting challenge,” writes Bloomberg: “Can Americans spare the money? Student debt and auto loans are at record levels, according to Federal Reserve data, and overall consumer debt is rising at the fastest pace in three years.” Bloomberg’s conclusion: “Retirement is an important goal, but may Americans seem to have more pressing financial concerns.”
This problem of “401(k) neglect” is just one grim statistic in a bleak overall picture of U.S. retirement savings. We can’t begin to count the number of articles in major publications that have sounded the alarm in the past several years concerning the meager amounts that Americans facing retirement have set aside for their future livelihood. Here’s one example we found on the website MarketWatch, which reported last year that “The median working-age couple has saved only $5,000 for their retirement,” according to the Federal Reserve. This article said that the shift from pension plans to 401(k)-style plans which took place beginning in the 1980’s has not worked at all as planned. “The do-it-yourself pension system is a disaster,” writes MarketWatch columnist Rex Nutting.
One analyst estimated that, among those who are within five to ten years of retirement, almost 40 percent have no retirement savings at all. Contrast this with the top ten percent who have put away an average of $274,000 in tax-sheltered accounts. MarketWatch points out that the tax breaks that were supposed to stimulate savings in 401(k) accounts have worked fine for those with means, but for lower-income workers they’ve done nothing. MarketWatch calls this “a perverse tax policy that helps the rich to save but doesn’t help the rest of us.”
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(link to www.bloomberg.com)