An Update on 401(K) Plans: Insights from the 2007 Survey of Consumer Finance

Posted: 4 Mar 2010

See all articles by Alicia H. Munnell

Alicia H. Munnell

Boston College - Center for Retirement Research

Richard W. Kopcke

Federal Reserve Bank of Boston

Francesca Golub-Sass

Boston College - Center For Retirement Research (CRR)

Dan Muldoon

Center for Retirement Research at Boston College

Date Written: November 1, 2009

Abstract

The maturation of the 401(k) system and the enactment of the Pension Protection Act of 2006, which made 401(k) plans easier and more automatic, were expected to enhance the role that 401(k)s played in the provision of retirement income. So, originally, the release of the Federal Reserve’s 2007 Survey of Consumer Finances (SCF) seemed like a great opportunity to reassess 401(k)s. But the 2007 SCF reflects a world that no longer exists. Interviews were conducted between May and December, when the Dow Jones was at 14,000 (the peak was October 9, 2007) and housing prices were only slightly off their peak.

Given the collapse of the financial markets and the economy, this paper uses the 2007 SCF data as a starting point in evaluating the condition of 401(k)s and the factors that affect participation and contributions, and relies on more recent data and estimates to paint a full and current picture. The analysis proceeds as follows. The first section describes the evolution of 401(k) plans and how the Pension Protection Act of 2006 would be expected to improve the performance of these plans. The second section uses data from the 2007 SCF and other sources to update previous findings on participation, contribution levels, investments, and withdrawals. The third section explores in more depth how individual characteristics and plan design affect participation and contributions in 401(k) plans. The fourth section then projects how the events of 2008 have affected various aspects of 401(k) plans. The final section concludes that whereas 401(k) plans were showing some improvement in 2007 and the analysis of participation and contribution decisions confirmed the trend toward auto-enrollment and the maturation of the system, the events of 2008 highlight the limitations of 401(k) plans in serving as the only supplement to Social Security.

Suggested Citation

Munnell, Alicia and Kopcke, Richard and Golub-Sass, Francesca and Muldoon, Dan, An Update on 401(K) Plans: Insights from the 2007 Survey of Consumer Finance (November 1, 2009). Available at SSRN: https://ssrn.com/abstract=1553247

Alicia Munnell (Contact Author)

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States
617-552-1762 (Phone)

Richard Kopcke

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-3099 (Phone)
617-973-3957 (Fax)

Francesca Golub-Sass

Boston College - Center For Retirement Research (CRR) ( email )

Chestnut Hill, MA 02167
United States

Dan Muldoon

Center for Retirement Research at Boston College ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
358
PlumX Metrics