In a speech this week at the National Press Club in Washington, Investment Company Institute President Paul Schott Stevens reported that only 3% of 401(k) plan participants stopped contributing to their plans in the first 10 months of 2008, despite a staggering 40% decline in the stock market. The ICI based its figures on an analysis of the records of 22.5 million plan participants.
Millions of Americans are staying the course and deserve fully transparent, tax-favored 401(k) plans, Stevens said.
The ICI also found that only 1.2% took out hardship withdrawals and 2.5% took out loans in the first 10 months of the year. Fifteen percent had outstanding loans, within the 13% to 17% range that the ICI has tracked since 1996.
Separately, the ICI conducted a survey of 3,000 households and found that most Americans want to preserve the features and flexibility of retirement plans and are anxious for Washington to preserve Social Security. Seventy-two percent are against reducing tax advantages for defined contribution plans and individual retirement accounts. Eighty-seven percent do not want the government to assume control of their investments.
Eighty-eight percent said that automatic payroll deductions make it easier for them to save, and 81% said the immediate tax savings from their retirement plan are a big incentive to contribute.
Nonetheless, the ICI is seeking ways to strengthen defined contribution plans. Congress should give workers, particularly older workers, the opportunity to contribute more, to help them make up for ground lost in the last year, Stevens said. The ICI would also like the government to encourage more employers to offer 401(k) plans and to make it easier for workers to participate, including clear information on investment risks, returns and fees, Stevens said.