Most Americans Still Lack Retirement Plan

Although ownership and assets in both 401(k)-type retirement plans and individual retirement accounts (IRAs) have risen, the majority of Americans still do not have a retirement plan, said the Employee Benefit Research Institute (EBRI) in its May Notes.

Study author Craig Copeland, EBRI Senior Research Associate, pointed out that certain subgroups of American workers, such as younger, less-educated, lower-income, and minority workers, are behind their peers in ownership of and contributions to these plans.

The proportion of workers ages 21 to 64 participating in a 401(k)-type plan increased from 24% in 1996 to 33% in 2005, according to the study. The likelihood of a worker participating in a 401(k)-type plan increased with age through age 55, then declined for those ages 55 to 64, the report said.

Education Gap

Copeland found that workers with higher incomes and education levels were more likely to participate in these plans. Among workers with family incomes below $10,000, 7% participated in a 401(k)-type plan, compared with 45% of workers with family incomes of $75,000 or more.

Half of workers with a graduate degree participate in a 401(k)-type plan, compared with 11% of workers without a high school diploma.

Individual Retirement

Similar trends were seen with individual retirement account (IRA) ownership. Twenty-three percent of workers ages 21 to 64 owned an IRA at the end of 2005—up from 16% at the end of 1996. Among workers with family income of $75,000 or more, 35% owned an IRA, while among those with family income of $10,000 to $19,999, 8% owned an IRA.

Three percent of workers ages 21 to 24 owned an IRA, compared with 34% of workers ages 55 to 64. Only 3% of workers without a high school diploma owned an IRA, while 47% of those with a graduate degree owned an IRA.

Increased Contribution

As ownership of 401(k)-type plans increased, so too did the mean annual contribution for those participants who made contributions. The percentage of individuals making a contribution at the maximum dollar amount allowed under Internal Revenue Service (IRS) regulations also rose from 3.2% in 1996 to 8.9% in 2004.

The study further found that the average annual investment earnings in 401(k)-type plans increased from $5,160 in 1996 to $5,801 in 2005. EBRI noted that assets grew sharply in 401(k)-type plans, from $144 billion in 1985 to $1.79 trillion in 1999. Assets fell to $1.57 trillion in 2002, then increased, reaching $2.4 trillion in 2005.

Data for IRAs did not follow the same pattern, the study found. Of those individuals making a contribution to an IRA, the mean contribution in 2005 was $2,540, compared with $2,041 (in 2005 dollars) in 1996. However, the percentage of those making the maximum allowable contribution declined from 66% in 1996 to 27% in 2005.

Average annual earnings in IRAs were down to just more than $3,553 in 2005 from approximately $4,600 (in 2005 dollars) in 2001. Of the $2.5 trillion in IRAs in 2002, $2.3 trillion was in traditional IRAs, representing more than 90% of all IRA assets, EBRI said. Roth IRAs amounted to $77.6 billion, and other IRAs held $133.4 billion in 2002.

The May 2008 EBRI Notes can be accessed at