Retirement plan participants
are taking out loans on their investments at an accelerated rate
jeopardizing their future
assets, a leading Boston College researcher says.
The percentage of participants in 401(k) programs who have taken
a loan from their investments rose from 9 percent in 2005 to 18
percent in 2007, said Alicia Munnell, director of the Boston College
Center for Retirement Research.
gI think you can also expect to see more withdrawals,h Munnell
said.
Employer-sponsored plans are able to encourage more people to
save. gBut less than 50 percent of the workforce, ages 25-64, has
any kind of defined benefit or defined contribution plan,h Munnell
said.
With the trend toward defined contribution plans, the
decision-making has shifted from the employer to the individual.
Of those who are eligible to participate in a defined
contribution plan, 89 percent do not contribute the maximum, 20
percent to 25 percent do not contribute at all and 45 percent do not
roll the investment over when they change jobs, she said.
gEmployers must make 401(k) plans more effective through
automation,h Munnell said.
Only 49 percent of employees participate in 401 (k) plans without
automatic enrollment compared to 86 percent of those who are
enrolled automatically.
Participants also tend not to increase the amount of their
default contributions.
A full 61 percent do not increase the amount over time, she said.
Government can help 401(k) plans, she said, by adding an annuity
default and inflation-indexed products.
gAnd we need another tier of the retirement system,h said
Munnell.
gOne third of all households have no other source of income but
Social Security. I donft have a particular proposal, but it could be
a funded tier, managed in the private sector with all of the good
aspects of a defined benefit plan.h
Filed by Investment News, a sister publication of
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