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CCH® PENSION AND BENEFITS — 3/23/07

Watson Wyatt study shows poor 401(k) plan participation not limited to low-paid workers

According to a study recently conducted by Watson Wyatt Worldwide, 10% of workers earning more than $100,000 per year do not participate in their employers' 401(k) plans. Furthermore, one in four 401(k) participants making $75,000 or more per year who have been with their employer for at least 20 years have less than a year's pay in their 401(k) plan accounts, the study shows. The study is based on data from 32 large companies that offer 401(k) plans and employ approximately 300,000 workers.

The surprisingly low level of participation among high income workers is still higher than the participation rate for young and lower-paid workers. As many as 52% of workers earning between $10,000 and $25,000 per year choose not to participate in their employers' 401(k) plans, according to the study. Two out of three lower-paid long-term employees who have been with their employers for at least 20 years and participate in their employers' 401(k) plans have less than one year's annual pay in their 401(k) accounts, says Watson Wyatt.

The study also showed that 401(k) participants who earn between $10,000 and $25,000 per year contribute an average of 6.2 percent of their salary, while participants earning at least $100,000 make annual contributions of almost 10% of their salaries. According to Robyn Credico, national director of Watson Wyatt's defined contribution practice, "...failing to contribute to 401(k) and other retirement plans early in one's career exacts a heavy toll on savings 40 years later. Workers who start late...may have to rely more heavily on other sources of income, such as other savings, Social Security and pensions."

For more information on this and related topics, consult the CCH Pension Plan Guide.

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