Enthusiasm And Trust High For 401(K) Plans
November 3, 2017
When it comes to saving for retirement, Americans love their 401(k) and other defined contribution (DC) plans. They demonstrate it with money and participation: as of late 2016, about 54 million Americans were active participants in DC plans, which collectively held more than $5 trillion in assets.
They are also willing to talk about it—and they do so in a very positive light. Among households expressing an opinion, a recent survey revealed 89% had favorable impressions of DC plans, with 38% indicating a very favorable impression. One reason cited is the ease with which individuals can save for retirement in a DC plan; nine out of ten households with defined contribution accounts said the plans helped them think about the long-term and made it easier to save. In fact, 44% of the households owning a defined contribution account said they would probably not be saving for retirement if they did not have a DC plan.
Clear message: keep the tax incentives
When asked about potential changes to DC accounts, respondents were less enthusiastic. A significant majority of U.S. households disagree with proposals to remove or reduce tax incentives for retirement savings. That correlates with the finding that 80% of households that own a DC account said the tax treatment of their retirement plan was a big incentive to contribute. In fact, 89% of households felt the government should not take away the tax advantages of DC accounts, and 90% said these advantages should not be reduced. Even households that don’t have a DC account or an IRA dislike the idea of removing tax incentives for retirement savings, with 82% rejecting the idea.
Positive reflections on investment choices
Investment options are another positive aspect of DC plans, according to survey respondents. These plans offer a wide array of investments—28, on average. The employer typically chooses which investments will be offered, usually stocks, bonds and cash equivalents, along with investments that hold a diversified mix. Almost all of the households owning a DC account, 96%, said they appreciate the choice and control offered. A strong majority (81%) said the investment lineup in their plan is good, and about 68% said they worry less about the stock market knowing they are saving from every paycheck.
When asked their views on a proposal where the government would invest retirement accounts in an investment selected by a government-appointed board of experts, 84% said no. The strongest opposition came from households with incomes over $100,000 and those aged 35 or over. Among households with retirement accounts, the negative response was 87%, compared to 79% of households without retirement accounts.
The Investment Company Institute report, American Views on Defined Contribution Plan Saving, 2016, is here.