401(k) and IRAs Fact Sheet

Retirement savings vehicles, such as IRAs and 401(k)s, offer workers the opportunity to save for retirement using pre-tax dollars. Do workers use these plans? What persuades workers to participate in these plans?

Who Participates--How Much Do They Contribute?
According to the RCS, 76 percent of workers offered a 401(k) or similar retirement saving plan at work contribute to the plan. Of participants

  • Only 65 percent know the maximum that they are allowed to contribute. Of these, less than one-half (48 percent) contribute the maximum.

Why Don't People Contribute?
Those not contributing at all say they:

  • Can't afford to contribute (48 percent)
    --55 percent of women cited this as a reason versus 40 percent of men
  • Are saving for other goals (31 percent)
    --38 percent of men cited this as a reason versus 26 percent of women
  • Find it too difficult to withdraw funds (31 percent)

Funds Are Mostly for Retirement.
Only 18 percent of 401(k) or similar plan participants report that they intend to tap into their retirement savings for purposes other than retirement, such as borrowing to purchase a house. The younger the workers, the more likely in general they are to say they will do so.

  • 20 percent of generation X'ers
  • 28 percent of late boomers
  • 11 percent of early boomers
  • 8 percent of pre-boomers

Employer-Provided Educational Programs and Materials Work.
Two-thirds of plan participants report that their employer has provided them with educational material or seminars regarding the plan in the past 12 months.

  • 86 percent report using the material and/or attending the seminars. Among these:
    --45 percent said that it led them to begin contributing to the plan.
    --49 percent said that it led them to reallocate their money among the investment options offered.
    --38 percent said that it led them to change the amount they contributed to the plan.

IRAs: High Nonparticipation and a Lack of Understanding.
The overwhelming majority of those currently eligible to make deductible IRA contributions do not contribute. Why not? Part of the reason may be as simple as a lack of understanding regarding IRA eligibility and usage rules.

  • Only 16 percent of all workers report that they have a very clear understanding of the eligibility rules for making tax-deductible IRA contributions.
  • 34 percent report that they find the rules somewhat clear.
  • 14 percent find the rules not too clear or not clear at all.
  • 31 percent of workers do not know because they have never looked into making a deductible IRA contribution.

Source: 1997 Retirement Confidence Survey.