For the First Time, Half of Private-Sector Workers Are Contributing to 401(k)s
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Tell Congress, stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition. Here's your Money Briefing for Tuesday, February 11th. I'm Arianna Aspuru for The Wall Street Journal. For the first time, half of private sector workers are now saving in 401 retirement accounts.
It was very common for people not to participate, even when they had access to these plans. And then along comes government policymakers with these sort of behavioral finance nudges, which involve the company basically enrolling you.
We'll talk with Wall Street Journal reporter Anne Turgason about future incentives that could spur millions of workers to save more. After the break.
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Decades after they replaced traditional pensions, more workers are participating in 401k retirement plans. Wall Street Journal retirement reporter Anne Turgason joins me. Anne, has this tipping point been a goal for a while?
I don't know that policymakers are specifically targeting 50% participation of private sector workers in 401ks. They certainly have, for years now, been trying to boost retirement. people's access to 401k plans at work. Not every employer out there offers one. So that's been a big goal of policymakers. And also trying to get more people in these plans to participate when they have access has been a big goal. But, you know, everything moves really slowly in 401k world. And about 50 years after we've started 401k plans, they're finally at a sort of a point where 50% of people are participating and 70% of private sector workers have access. So that's something that we thought was worth writing about.
When someone is automatically enrolled into their company's 401k plan, how much of their paycheck is usually contributed to it, like at the beginning?
What has arisen and become very popular among 401k plans is something called automatic enrollment. And that's something that regulators in Congress facilitated as long ago as 20, even 30 years ago. But that's really been gaining traction.
Why is this episode claiming half of private‑sector workers now contribute to 401(k)s?
It used to be that basically when you joined a company, the employer would say, hey, we have this 401k plan. You need to enroll in it. Here's how to do that. And before the Internet, it was all paper based. And, you know, it would take a long time to get the paperwork done. A lot of people just put the paperwork aside, never did it. It was very common for people. not to participate, even when they had access to these plans. And then along comes government policymakers with these sort of behavioral finance nudges, which involve the company basically enrolling you. You know, you're a new employee. Hey, we're going to enroll you right away in the 401k plan or, you know, whenever you're eligible. And we're going to take 3% of your pay and put it into a 401k account.
Now, 3% was Just something that became kind of a common number. Aside from that 3%, if you don't like that 3%, you can go in there and you can raise it if you want. You can say, hey, I can't afford to save at all. You can opt out. So the savings rate is very much under the control, ultimately, of the employee.
Historically, small businesses haven't been known to offer retirement plans or contribution matches since they have limited funds. What's changed there?
A bunch of things have changed. For one thing, Congress passed some retirement-focused legislation. In the past six years, there have been two different bills passed, and both of those bills contain sort of sweeteners to try to encourage their tax credits, to try to encourage small businesses to start 401ks.
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