Saver Behavior and 401(k) Retirement Wealth

Contributions to 401(k) plans are now the most
important form of retirement saving. Since 401(k)
plans were introduced in the early 1980's, they
have expanded rapidly and continuously. By
1998, roughly half of all households were eligible
to participate in 401(k) plans, and more than 36
million workers made contributions to these
employer-provided saving plans. In 1995, the last
year for which the U.S. Department of Labor
has released definitive data, 401(k) contribu-
tions amounted to $87.4 billion, or 55 percent of
all contributions to employer-sponsored pension
plans. The level of contributions, and their share
of all pension contributions, is probably signifi-
cantly higher today.
The spread of 401(k) plans is the most
important indicator of the move to personal
retirement saving. In 1980, almost 92 percent
of pension-plan contributions were to tradi-
tional employer-provided plans, and about
64 percent of these contributions were to
conventional defined-benefit plans. Today,
almost 60 percent of contributions are to
personal retirement accounts, including 401(k),
IRA, and Keogh plans. Including employer-
provided, non-40 1 (k) defined-contribution
plans, over 76 percent of contributions are to
plans that are controlled in large measure by
individuals. These individuals make partici-
pation, contribution, asset-allocation, and
withdrawal decisions.
In this paper, we describe the likely impor-
tance of 401(k) assets for future older Ameri-
cans and the effect of investment decisions on
asset accumulation. We also examine the extent
to which retirement assets may be affected by
several decisions: preretirement withdrawals,
management fees and expenses, contribution
rates, and early retirement. Our analysis focuses
on 401(k) saving, but applies more broadly to
other forms of individual retirement saving.