401(k) reductions

After hitting a high of 54.6 million full-time workers in 2000, participation in 401(k) retirement plans slipped to 48.4 million last year, according to this report from Kiplinger.

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.

"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," according to Craig Copeland, senior research associate at EBRI.

OTHER KIPLINGER REPORT NOTES
• 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%.

• 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.

• 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.

• Sen. Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions says he will look next year at the impact of firms shifting from defined benefit to defined contribution plans.

• One proposal suggested by Democrats 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.