An Update on 401(k) Plans: Insights From the 2007 SCF

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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 the role 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.

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