Surprise! 401(k)s rode out the Great Recession just fine

'Tis the season for retirement plan surveys. I was notified of at least three new reports this week alone. Normally, I don't get overexcited about yet another study on how poorly prepared most Americans are for retirement. But there's one study that I pay close attention to year after year: The Annual Transamerica Retirement Survey. It offers an enlightening look at retirement plan trends from both the employer and employee perspective and provides recommendations for improvements to plan sponsors, participants and policymakers. It's consistent and comprehensive. The latest survey — its 13th annual report — looks at how 401(k) plans have fared over the past five years during the Great Recession. In a message clearly aimed at Congress and critics of the 401(k) system, Catherine Collinson, president of Transamerica Center for Retirement Studies, said, “The research brings to light opportunities to improve our current retirement system that can significantly and positively impact workers' ability to achieve retirement readiness without necessarily sweeping legislation or widespread reforms.” Despite economic difficulties, access to retirement savings plans increased over the past five years. The percentage of employers offering 401(k) plans rose from 72% in 2007 to 82% in 2012. During the same five-year period, the number of companies offering traditional defined-benefit pension plans decreased from 19% in 2007 to 16% in 2012. Although the percentage of employers offering matching contributions decreased from 80% in 2007 to 70% this year, half of those who decreased or suspended their match since 2008 have already reinstated it. Automatic 401(k) features such as automatic enrollment and automatic escalation are on the rise. The percentage of large companies, defined as those with 500 or more employees, offering automatic features increased from 31% in 2007 to 45% in 2012. And a whopping 84% of them have adopted a Qualified Default Investment Alternative solution, such as a target-date fund or managed account, for employees who fail to make their own investment selections. The percentage of employers adding a Roth feature to their plan increased from 19% in 2007 to 32% in 2012. Meanwhile, American workers continued to save for retirement during hard times. Participation rates remained strong and steady at 77% and in 2012, the median annual salary deferral rate returned to the 2007 level of 7%, after dipping to 6% during 2009, 2010, and 2011 . Median household retirement savings increased substantially across all age groups. The median account balance of Baby Boomers—those born between 1946 and 1964—rose 33% to $99,320 in 2012. Gen Xers, born between 1965 and 1978, increased their median savings by 30% to $41,821. Echo Boomers, the children of the boomers born between 1979 and 1988, showed the largest improvement as their median savings balance ballooned 77% since 2007 to $15,213 this year. “If this growth is as good as it appears, it should serve to illustrate the strength and success of the current retirement system given the extremely difficult challenges in the economy," Collinson said. Unfortunately, the recession affected retirement savings in other ways as some workers, particularly those who became unemployed or underemployed, had to take loans or hardship withdrawals from their accounts. Despite the impressive savings gains, current account balances are inadequate for many workers to meet their future retirement income needs. Consequently, the majority of workers—56%--plan to work past age 65, including 43% who plan to work past age 70 or who do not plan to retire. “With so many workers planning to work longer, employers can offer opportunities to help older workers extend their working years and their transition into retirement,” said Collinson. An increased emphasis on pre-retirement seminars and new retirement income options could create enormous opportunities for financial advisers, whether they work with employers to modernize their plans or with individual clients as they grapple with such important decisions.