Participation in 401(k) plans is growing slowly

May 25, 2008|By Walter Hamilton | Walter Hamilton,Los Angeles Times

The national housing obsession in recent years may have dulled the urge to invest in 401(k) retirement plans.

After expanding strongly throughout the 1990s, participation in 401(k) and other employee-funded retirement plans has grown more slowly in recent years, according to data released by a Washington-based research group.

The number of people investing in 401(k) and similar plans climbed to 50.9 million in 2000, from 42.2 million in 1995, according to the Employee Benefit Research Institute. From there, though, participation rose only to 52.2 million through 2004, the institute said.

There are several reasons, including fewer small companies offering plans and lingering investor concerns about the stock market after the bursting of the technology bubble in 2000, said Craig Copeland, the author of the study.

But the preoccupation with housing played a role, Copeland said, as some people earmarked cash for new or remodeled dwellings as home prices surged, instead of funding retirement accounts.

People considered housing to be "the big investment," he said.

Of course, for some people, their home is their retirement plan. But with prices now sliding, the long-term payoff may be a lot less certain.

As for 401(k) plans, the mean annual contribution amount inched up to $4,993 in 2005, from $4,607 in 2001, according to the study.

Plan participation rates are likely to pick up in coming years because the government has given companies clearance to automatically enroll workers in 401(k)'s.

Nevertheless, the study showed that many people fail to put enough emphasis on retirement saving, Copeland said. "It shows that people aren't getting the message that they're going to have to do more to plan for their retirement," he said.

Walter Hamilton writes for the Los Angeles Times.

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