Federal Reserve Report Reflects 401(k) Picture that "No Longer Exists"

March 3, 2009 (PLANSPONSOR.com) - The release of the Federal Reserve's 2007 Survey of Consumer Finances (SCF) came to late to provide an accurate picture of the 401(k) plan landscape.

That is the contention in a new issue brief from researchers at the Center for Retirement Research (CRR) at Boston College. Considering that enactment of the Pension Protection Act of 2006 was supposed to make participating and investing in 401(k) plans easier, release of the 2007 SCF seemed like a great opportunity to reassess 401(k)s; however, “the 2007 SCF reflects a world that no longer exists,” they said.

The 2007 SCF shows 401(k)/IRA balances of $78,000 for those approaching retirement – a modest improvement over 2004, according to researchers Alicia H. Munnell, Francesca Golub-Sass, and Dan Muldoon. The progress was due in part to slightly higher participation rates, improved diversification, and fewer withdrawals and loans, according to the report.

However, the researchers note that by October 2008, the stock market collapse had reduced 401(k)/IRA balances by about 30% – to just $56,000. In addition, hardship withdrawals – while still at low levels – have ticked up, the report said.

The report authors also point out that recent announcements show more companies have begun cutting their employer match, which will slow 401(k) growth. The CRR has compiled a table of companies that have announced 401(k) match contribution suspensions.

“An Update on 401(k) Plans: Insights From the 2007 SCF” can be downloaded from here .