Higher Earners also Among 401(k) Non-Participants

March 6, 2007 (PLANSPONSOR.com) - A new Watson Wyatt analysis has found that younger, lower-paid workers are not the only ones dragging their feet about getting into their employer's 401(k) plan.

A Watson Wyatt news release said its analysis found that nearly one out of 10 workers earning more than $100,000 has not joined their plan. The firm examined the workplace retirement savings behavior of about 300,000 workers at 32 large employers that offer a 401(k) (and, in some cases, a defined benefit plan).

Some 52% of workers earning between $10,000 and $25,000 were among the non-participant ranks. Generally, about 70% of workers participate in 401(k) plans, a percentage that has held relatively steady for several years, Watson Wyatt pointed out.

“Despite employers’ ongoing efforts to educate workers on the need to save for retirement, the bottom line is that voluntary participation in these types of plans doesn’t work well for everyone, even high earners,” said Mark Warshawsky, director of retirement research at Watson Wyatt, in the news release. “It’s one thing to know how much to save for retirement; it is quite another to do it.”

Warshawsky noted that the rapidly spreading auto enrollment trend is likely to increase 401(k) participation. Some employers have found that with automatic enrollment more than 90% of employees participate in the 401(k) plan.

Looking at the deferral issue, the analysis also found workers earning between $10,000 and $25,000 annually contribute 6.2% of their salary to 401(k) plans, while workers earning at least $100,000 annually contribute almost 10%. Some high-wage earners, however, may be restricted in how much they can contribute because of non-discrimination rules and allowable legal limits, Watson Wyatt noted.

In addition, the analysis found many workers who have been with their employer for at least 20 years have not accumulated large 401(k) account balances. According to the news release, two out of three workers who earn $10,000 to $25,000 annually and who have been with the same employer for two decades have accumulated less than one year’s annual pay in their accounts. Even in the $75,000 and higher pay category, about one out of four workers examined came up short of a year’s pay.