Retirement Plan Participation on the Rise

January 18, 2005 ( - Employee participation in individual retirement plans has increased considerably from 1996 to 2001, according to the Employee Benefits Research Institute (EBRI).

In what seems to be an encouraging sign for retirement savings, worker participation in a 401(k)-type plan increased from 23% in 1996 to 28% in 2001, while the percentage of those who owned an individual retirement account (IRA) increased from 16% in 1996 to 19% in 2002. The percentage of Americans owning either type of plan increased from 34% to 40% over that time frame, while the percentage owning both increased from 6% to 9%.

The average 401(k)-type plan balance for those between the ages of 21 and 64 rose from $25,208 in 1996 to $33,647 in 2002, while the average IRA balance increased from $23,025 to $26,951 over the same duration, according to the study. The percentage of workers who contributed their maximum amount to their 401(k) rose from 3.2% to 5.6% from 1996 to 2001.

Not surprisingly, the number of years contributing to plan correlates highly with account balance, with 13 years being pegged by EBRI as sufficient to support “a number of years” of retirement. Only 20% have reached such a threshold, however.

There is also a strong correlation between age and participation, the study finds, with only 10% of those between the ages of 21 and 24 holding an account, compared to over 50% for those between 55 and 64. Workers who are white, married or male are also more likely to own such accounts and have higher balances than their comparison groups, the study found.

The EBRI study also looks at the income for elderly Americans. It was found that the median income level for the elderly population in 2003 was $15,007, up from the 1975 figure of $11,376 (constant 2003 dollars were used in the calculation). Social security made up the largest portion of retirement income for those over 65 in 2003, accounting for 41.9% of income on average. Retirement plans made up 20.6%, income from assets 13.9%, and earnings 21.7%. Elderly women (50.8%) derived much more of their income from Social Security than did men (35.5%). The lowest quintile received 91.2% of their retirement income from Social Security in 2003, while the highest quintile received 19.5% of their income from the federal retirement program.

The EBRI study is available here .