Market Storm Fails to Shake Faith in 401(k) Plans, Survey Says
December 29, 2008 | By Mark Schoeff Jr.
A collapsing stock market has not shaken investor confidence in their retirement plans, according to a survey released at a Newsmaker on Friday, Dec. 19.
The Investment Company Institute analyzed data from more than 22 million 401(k) retirement savings accounts sponsored by its members and other large financial administrators.
The study found that 3 percent of investors stopped contributing to their plans in 2008 and that 3.7 percent took some kind of withdrawal. “In sum, 401(k) investors are not racing for the exits,” said
Paul Schott Stevens, president and CEO of the institute, which is the national trade association for mutual funds.
Mutual funds manage about half of the assets in 401(k) and other defined contribution retirement plans. About 56 million Americans have money in such investment vehicles. The institute argues that 401(k) plans are more flexible and portable than defined benefit pensions.
Doubts have arisen on Capitol Hill about the security of 401(k) plans. At an October hearing of the House Education and Labor Committee, Peter Orszag, then head of the Congressional Budget Office, testified that pension plans had lost $2 trillion over the previous year.
Another witness, Teresa Ghilarducci, a professor of economic policy analysis at the New School for Social Research in New York, proposed to replace 401(k) accounts, which are managed by individual workers, with a government-sponsored plan that would guarantee a 3 percent annual return over inflation.
Rep. George Miller, D-Calif., and chairman of the House labor committee, questioned whether 401(k) plans deserve special tax breaks for contributions from workers and companies.
Stevens urged Congress not scrap the 401(k) system or change the tax advantages associated with it. He pointed to a separate survey of 3000 U.S. households that showed that people don’t want any major changes made to 401(k) plans.
Stevens said that 87 percent of respondents “rejected the idea that the government, and not individuals, should make investment decisions for retirement accounts.” He also said the results indicate that Americans want to maintain the special tax treatment.
“More than 70 percent support those incentives to invest,” Stevens said.
As Congress comes back into session in January, Stevens was making a pre-emptive strike on retirement policy. “The American people aren’t ready to give up on 401(k),” he said. “And that’s a message our lawmakers should heed.”
Stevens said his group does support retirement security reform, including strengthening Social Security financing, allowing workers to contribute more to 401(k) plans, encouraging more companies and workers to adopt 401(k) plans and improving access to investment information, advice and education.