More evidence that Americans aren't saving enough for their retirement: Workers' participation in 401(k)s is down, both in absolute terms and as a share of the workforce. After hitting a high of 54.6 million full-time workers in 2000, participation slipped to 48.4 million last year, according to research by the Employee Benefit Research Institute (EBRI).
The number is expected to continue to drop. By 2012, only about 50% of workers will be taking part in the employer sponsored plans, down from 54.4% this year and 59.8% in 2000.
Unemployment is weighing heavily on workers' ability to save for retirement. The number of workers participating in employment-based retirement plans hit its lowest level since 1997. This is largely attributable to the decline in the number of workers as unemployment hovers around 10%.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A decline in the availability of employer sponsored plans is another cause. Just 61.8% of employers offered plans to full-time employees last year, compared with 68.6% in 1999. Many private sector employers have done away with traditional defined benefit pension plans, and in the recent recession, many have frozen or cut matching contributions, reducing the incentive to participate.
"This trend has important implications for workers, since having more opportunities to participate in an employment-based retirement plan greatly increases the amount of money a retiree is likely to have in retirement," says Craig Copeland, senior research associate at EBRI.
On the bright side, the number of hardship withdrawals and loan requests remains steady. Neither is expected to grow significantly over the next year, demonstrating the commitment of participants to stay the course in saving for retirement.
Still, lawmakers are worried. Sen. Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions, is promising a hard look next year at the impact of firms shifting from defined benefit to defined contribution plans. "We are facing a future where no one other than the rich will have the opportunity for a safe and secure retirement," he said at a committee hearing in October.
"People that work hard for their entire lives will find themselves teetering on the brink of poverty, unable to pay the basic costs of living," he said. "That is going to have drastic consequences for families and our country as a whole."
But solutions will likely be elusive. One proposal, by Sen. Jeff Bingaman (D-NM) and Rep. Richard Neal (D-MA), would require employers to put up to 3% of workers' pay in an IRA if employees aren't offered an employer sponsored plan. Republicans will fight the proposal, arguing that it would be burdensome to small businesses.
The problem will also complicate discussions over larger retirement issues, including the already thorny subjects of Social Security and Medicare benefits. It's clear that "the system is failing many Americans, and that the 'three-legged stool' of retirement security -- private pensions, personal savings and Social Security -- has gotten awfully wobbly," Harkin said at the October hearing.
-
Stock Market Today: Stocks Rally Despite Rising Geopolitical TensionThe main indexes were mixed on Tuesday but closed well off their lows after an early flight to safety.
-
What's at Stake for Alphabet as DOJ Eyes Google's ChromeAlphabet is higher Tuesday even as antitrust officials at the DOJ support forcing Google to sell its popular web browser. Here's what you need to know.
-
Kiplinger Outlook: Telecom Companies Brace for Tough TimesThe Letter The telecom industry is entering a new era that threatens profitability. But the coming Trump administration will make it easier for the major players to adjust.
-
Start-ups Trying to (Profitably) Solve the World’s Hardest ProblemsThe Letter More investors are interested in companies working on breakthrough science to tackle huge societal challenges. The field of deep tech has major tailwinds, too.
-
The Big Questions for AR’s FutureThe Letter As Meta shows off a flashy AR prototype, Microsoft quietly stops supporting its own AR headset. The two companies highlight the promise and peril of AR.
-
China's Economy Faces Darkening OutlookThe Letter What the slowdown in China means for U.S. businesses.
-
AI Start-ups Keep Scoring Huge SumsThe Kiplinger Letter Investors continue to make bigger bets on artificial intelligence start-ups, even for small teams with no revenue. Some backers think a startling tech breakthrough is near.
-
Should We Worry About the Slowing U.S. EconomyThe Letter With the labor market cooling off and financial markets turning jittery, just how healthy is the economy right now?
-
New Phones Get All the Hype, but Consumers Still Love Old Models
The Letter Even as flashy artificial intelligence features drive sales of new smartphones, used phones continue to fetch big bucks as demand outstrips supply.
-
Starlink's Internet Beamed From Space Is Taking OffThe Kiplinger Letter Satellite broadband provider Starlink is taking over the space market. Amazon’s mega-constellation will soon join the fray, adding to the unprecedented disruption.
