Even High Earners Shun 401(k)s

''Voluntary participation in these types of plans doesn't work well for everyone,'' including nearly 10 percent of workers who earn more than $100,000 a year, according to a new analysis by Watson Wyatt.

Many companies routinely have trouble convincing younger and lower-earning employees to sign up for their 401(k) plans. Indeed, consultancy Watson Wyatt found that 52 percent of workers earning between $10,000 and $25,000 annually choose not to participate.

Surprisingly, though, that’s also true for nearly 10 percent of workers who earn more than $100,000.

“Despite employers’ ongoing efforts to educate workers on the need to save for retirement, the bottom line is that voluntary participation in these types of plans doesn’t work well for everyone, even high earners,” said Mark Warshawsky, director of retirement research at Watson Wyatt, in a statement. “It’s one thing to know how much to save for retirement; it is quite another to do it.”

Watson Wyatt based its analysis on about 300,000 workers at 32 large employers that offer a 401(k) and, in some cases, a defined benefit plan.

Overall about 70 percent of workers participate in 401(k) plans, a percentage that has held relatively steady for several years.

This could soon start to change, however, in light of the recently passed Pension Protection Act, which allows companies to automatically enroll employees in their plans. According to Watson Wyatt, some employers that have adopted automatic enrollment now have a participation rate exceeding 90 percent.

Simply participating in a 401(k) does not guarantee a robust retirement fund, the consultancy stressed. According to Watson Wyatt, workers earning between $10,000 and $25,000 contribute just 6.2 percent of their salary to a plan. For workers who earn more than $100,000, that figure is almost 10 percent, but their contributions may be restricted by non-discrimination rules and other legal limits, noted the consultancy.

The result, observed Watson Wyatt, is that two out of three workers who earn $10,000 to $25,000 and who have been with the same employer for at least 20 years have accumulated less than one year’s pay in their account. About 25 percent of workers who earn $75,000 or more also have less than a year’s pay set aside for retirement.

“Clearly, many workers don’t start saving soon enough, and even those who do may not be contributing adequate amounts,” said Robyn Credico, national director of Watson Wyatt’s defined contribution practice, in a statement.

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