Defined Contribution Plans Provide Foundation for Retirement Security, says American Council of Life Insurers

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Feb 10, 2014, 11:43 ET

WASHINGTON, Feb. 10, 2014 /PRNewswire-USNewswire/ -- 401(k) and other "defined contribution" (DC) retirement plans provide a robust and growing foundation for Americans' retirement security, says a new research report, "Building Retirement Security Through Defined Contribution Plans."

Professors Jeffrey R. Brown and Scott J. Weisbenner from the University of Illinois at Urbana-Champaign analyzed the private retirement system in the U.S. They found that employer-sponsored retirement plans are widely used across the nation. About 80 percent of America's full-time workers have access to an employer-based retirement plan, and nearly 80 percent of those workers do participate.

The research demonstrates how 401(k) plans play a critical role in Americans' retirement security. As Congress and state legislators consider ways to improve America's retirement system, this report illuminates the vital role employer-based retirement plans play in creating a safe and secure retirement.

To improve and expand access and participation in DC plans, Brown and Weisbenner recommend better incentives for small businesses to offer plans and making it easier to include part-time workers. They also recommend boosting contribution rates through automatic enrollment and automatic escalation, which can result in higher savings rates.

To help people better manage their assets in retirement, they suggest removing regulatory barriers that have discouraged employers from including guaranteed lifetime income options in their DC plans.

DC plans have become the new foundation of the U.S. private retirement system. Employer-sponsored retirement plans provide more than 83 million American workers with a convenient, effective way to save for their golden years. Nearly two-thirds of households with DC accounts and income less than $50,000 a year either strongly or somewhat agree with the statement, "I probably wouldn't save for retirement if I didn't have a retirement plan at work."

Most DC plans include a combination of employee and employer contributions. The median employer-plus-employee contribution rate has risen to nearly 10 percent of employee income. And as the contributions have grown, so have the size of these investments.

Brown and Weisbenner say that the employer-based DC retirement plan system can be further strengthened. Policy makers, plan sponsors and participants should focus their energy on continuing to improve the existing DC system.

Learn more at www.acli.com.

American Council of Life Insurers 101 Constitution Ave, NW, Suite 700, Washington, DC 20001-2133

SOURCE American Council of Life Insurers