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.
-
Four Surprising Signs You’ll Never Retire (and How to Fix Them)Gearing up to retire? If any of these four signs ring true, you may want to make some changes before you do.
-
Stocks Rise After Trump-Powell Fed Tour: Stock Market TodayNvidia hit a new all-time high intraday, but another renowned semiconductor name and some less iconic stocks were bigger movers Friday.
-
AI-Powered Smart Glasses Set to Make a Bigger SplashThe Kiplinger Letter Meta leads the way with its sleek, fashionable smart glasses, but Apple reportedly plans to join the fray by late 2026. Improved AI will lure more customers.
-
Breaking China's Stranglehold on Rare Earth ElementsThe Letter China is using its near-monopoly on critical minerals to win trade concessions. Can the U.S. find alternate supplies?
-
Things that Surprise Business Owners When It’s Time to SellThe Kiplinger Letter When it’s time to retire and enjoy the fruits of growing their business, owners are often surprised by how tough it is to give up their baby!
-
What New Tariffs Mean for Car ShoppersThe Kiplinger Letter Car deals are growing scarcer. Meanwhile, tax credits for EVs are on the way out, but tax breaks for car loans are coming.
-
AI’s Rapid Rise Sparks New Cyber ThreatsThe Kiplinger Letter Cybersecurity professionals are racing to ward off AI threats while also using AI tools to shore up defenses.
-
Blue Collar Workers Add AI to Their ToolboxesThe Kiplinger Letter AI can’t fix a leak or install lighting, but more and more tradespeople are adopting artificial intelligence for back-office work and other tasks.
-
Will State Laws Hurt AI’s Future?The Kiplinger Letter Republicans in Congress are considering a moratorium on state AI laws. But it’s likely a growing patchwork of state AI regulations will be here for a while.
-
The New AI Agents Will Tackle Your To-Do ListThe Kiplinger Letter Autonomous AI agents “see” your computer screen, then complete a task, from buying a concert ticket to organizing email. This opens up a world of possibilities.
