In 2000, overall participation in the overall category of tax-favored retirement plans dropped by 1% to 50%, CBO said in the latest report , with the drop evident across all age groups except for higher-income workers or two-earner married couples. Workplace plans also saw a decrease with a 2% falloff to 45% while mimicking the participation patterns seen in the overall tax-favored plan category.
The new paper updates a 2003 report, Utilization of Tax Incentives for Retirement Saving, which examined a sample of data from 1997 tax forms. The earlier paper studied participation rates and contributions to employment-based retirement plans, individual retirement accounts and Keogh plans in 1997. The updated research presents comparable figures for 2000 and compares them to the 1997 data. The update also presents data that were not available in 1997 on Roth IRAs, simplified employee pensions (SEPs), and savings incentive match plans for employees (SIMPLEs), CBO said.
Meanwhile, participation in 401(k) type plans – such as 403(b)s, 457s, and the federal thrift savings plan – was up in 2000 by 1% to 28%, over the 1997 study. Participation remained steady for all income groups, except for an increase in those earning more than $120,000.
Participation in noncontributory plans, such as defined benefit plans, dropped in 2000 by 3% to 17%. The decline was evident for all age groups and all income levels, the report said, with those with incomes of $80,000 experiencing the sharpest drop in participation.
CBO said if workers participated in both a Section 401(k)-type plan and a noncontributory plan, the workers were counted only in the Section 401(k)-type plan category.
Moving to personal tax-favored accounts, the CBO said p articipation in IRAs jumped by 2% to 8% in 2000, with an even split between traditional and Roth IRAs. The group aged between 45 and 59 had the greatest increase, nearly 3%, according to the study.
In 2000, the average deferral to a 401(k)-type plan was $3,039 (in 1997 dollars), up nearly 10%. Also in 2000, 7% maxed out their contributions to the amount allowed by law, up from 6% in 1997.
CBO said that although the age group of 45 to 59 had the highest average contribution in a 401(k)-type plan, that age group showed a rate of growth of contributions of less than 4% between 1997 and 2000. In contrast, the under-30 age group had the lowest average contribution, but showed the highest rate of growth of contributions of more than 17%, the research found.