Employee Participation in 401(k) Plans Continues To Plummet in 2005 To 70%, Study Finds

Participation in 401(k) plans by employees has been declining for six years. Participation in 401(k) plans stood at 80% in 1999, which means 4 out of 5 eligible employees put money into their companies' plans that year. Participation has fallen

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Participation in 401(k) plans by employees has been declining for six years.

Participation in 401(k) plans stood at 80% in 1999, which means 4 out of 5 eligible employees put money into their companies’ plans that year. Participation has fallen significantly since then, dropping to 72% in 2002 and 70% in 2005, according to the Spectrem Group study “2005 Defined Contribution Market Needs. This represents a 6-year decline of 13%.

Further, over the same period the percentage of salary put into 401(k) plans, known as the deferral rate, has declined 20%. The average deferral rate fell from 8.6% in 1999 to 6.9% in 2005.

“Workers appear to be losing their taste for 401(k) retirement savings, with participation in these tax-deferred plans declining 13% over the past 6 years and the percentage of salary put into them dropping 20%,” said George H. Walper, Jr., president of Spectrem Group. “Whether due to decreased enthusiasm for market exposure following the burst of the Internet bubble, generally poor market performance since that time, or other factors, declines of this magnitude could mean that many of today’s workers will find themselves ill-prepared for retirement.”

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