Disinterest, Preoccupation with Debt Tampers 401(k) Participation

Many workers are not using their 401(k) plans to realize their full retirement savings potential, according to a study conducted by consulting firm Hewitt Associates and researchers from Harvard University and the University of Pennsylvania's Wharton School, Dow Jones reports.

More than two-thirds of workers surveyed, who didn't contribute enough to match their employer contribution, said they could afford to save at least an additional $20 a week, or $1,040 a year, for retirement than they are currently saving. In spite of recognizing this shortcoming, these workers said that they didn't plan to increase their contributions.

The study, which was released Thursday, found that along with plan designs and lack of knowledge, workers cited other reasons for barriers to contribution. These included, for instance, a desire to pay off debt first, procrastination, expectations of changing jobs, and a general aversion to investing in the financial markets.

The study also found that age plays an important role in workers' reasons not to save. Workers 59-1/2 and older said that they weren't going to be at their jobs long enough to see the need to contribute to their 401(k)s. The second reason this group gave was affordability. For workers younger than 59-1/2, nearly half cited affordability and about one-third cited a lack of confidence in the financial markets amid corporate scandals as a prime reason for not enrolling.

"The biggest surprise to us was that certain individuals were able to say, 'Yes, I do think I can save a little more and I probably should,'" says Lori Lucas, director of participant research at Hewitt. "But they still weren't committed to doing it. They'd rather consume today than save."

Lucas said that educational intervention alone isn't going to help encourage participants to be more proactive savers. In fact, about half the employees contributing below the match threshold received additional educational information about their plans. But this did not lead to any observable differences in saving between those who received the information and those who didn't, according to the study.