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.