Workers with Pensions Save More in 401(k)

Current 401(k) account balances are hovering just below the typical value in 2004

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Workers with a traditional pension can generally get by saving less for retirement because they have a guaranteed stream of income above what Social Security provides. But employees with both a 401(k) and a traditional pension actually save more in their 401(k)s than workers with only a 401(k) or similar retirement plan. In 2007, the median balance in a 401(k) or similar retirement plan for families with a pension and a 401(k) was $56,000, while the median balance was $25,000 for families with only a 401(k)-type plan, according to the Federal Reserve Board’s Survey of Consumer Finances.

This difference was found among all demographic groups in 2007. “This suggests that families that participate in both types of plans tend to be more highly compensated and are therefore more able to save, have a more generous defined contribution plan, or have traits in common with those that tend to save more,” writes Craig Copeland, a senior research associate at the Employee Benefit Research Institute, in a report released today.

Slightly less than a quarter of workers with access to retirement plans at work are offered both a pension and 401(k). Most employees (60 percent) have only a 401(k)-type plan and just 17 percent participated only in a traditional pension in 2007. There has been a significant decline in employers offering traditional pensions since 1992. Many more companies have frozen pension plans and cut their 401(k) matches since the recession began.

The EBRI analysis also found that the median 401(k) value was $26,578 as of June 2009, down 16.4 percent from $31,800 in 2007. Current 401(k) accounts are now valued slightly below the 2004 median 401(k) account balance of $27,458. The declines were larger for those with family incomes of $100,000 or more (22 percent) or having a net worth in the top 10 percent of Americans (28 percent). Individuals with an IRA or Keogh plan saw their account balances drop by 15 percent from a median of $34,000 in 2007 to $28,955 in mid-June 2009.

Overall 401(k)-type retirement plans held $3.73 trillion in assets in 2007, which plummeted to $2.67 trillion by the end of 2008, according to the Federal Reserve. The value of IRAs also dropped from $4.75 trillion in 2007 to $3.61 trillion in 2008.