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Americans Pleased with Current 401(k) System, Oppose Changes

Plan participants like the flexibility and control of 401(k)s and are overwhelmingly confident they will help them meet their retirement goals, according to a new study by the Investment Company Institute.

As its 11th annual update, ICI’s “American Views on Defined Contribution Plan Saving, 2018” finds that more than three-quarters of respondents are confident that 401(k) and other DC plans will help them meet their retirement goals, similar to the confidence levels expressed in prior years.

Not surprisingly, that confidence was higher among households that currently own DC accounts or IRAs at 83%, but even 62% of non-owners expressed confidence in the DC system.

Hands off my 401(k)

Survey respondents also strongly oppose changes to key DC plan features — and this was consistent even if they are not currently taking advantage of a DC account. ICI explains that, because some opinion leaders and policymakers have questioned the public value of the tax deferral that 401(k) plans and IRAs receive, survey respondents were asked whether the government should take away these tax incentives.

According to the findings, 88% of respondents disagreed that the government should either remove the tax advantages of DC plans, or reduce the amount that individuals can contribute to their DC accounts. Even among those without DC accounts or IRAs, 81% opposed eliminating the incentives and reducing the contribution limits.

Tax Incentives and Choice

Overall, 85% of DC-owning individuals agreed that the “tax treatment of my retirement plan is a big incentive to contribute.” The report notes that agreement was high across all age and income groups, although it tended to increase with age and was a bit higher for individuals with household incomes of $50,000 or more (87%), compared to those with household incomes below $50,000 (77%).

When asked whether “knowing that I’m saving from every paycheck makes me less worried about the short-term performance of my investments,” nearly 80% of DC-owning individuals agreed with that statement. This finding ranged from 64% of DC-owning individuals with household incomes of less than $30,000 to 84% of those with household incomes of $100,000 or more.

What’s more, strong majorities of respondents disagreed with proposals to take away investment choices or control of account balances during retirement, further reinforcing the notion that participants strongly support retaining the structure of DC plans.

Investment Lineup

When asked about DC plans’ investment features, more than 9 in 10 DC-owning individuals agreed that it was important to have a choice in, and control of, the investments in their plans. A majority of respondents also opposed proposals to require retirement accounts to be converted into a lifetime income contract, the report notes.

DC plan investment option lineups were also viewed favorably, according to the findings. Satisfaction was high across all age and household income groups, although it was somewhat higher for DC-owning individuals with household incomes of $100,000 or more (89%) and slightly lower for those with household incomes of less than $30,000 (67%), the report shows.

Employer-Provided Ease

Respondents also largely agree that employer-sponsored retirement accounts help them think about the long-term, making it easier for them to save. Nearly half (49%) of DC-owning individuals agreed with the statement, “I probably wouldn’t save for retirement if I didn’t have a retirement plan at work.”

Agreement was highest (70%) among individuals with household incomes of less than $30,000. The level fell to 56% for individuals with household incomes between $50,000 and $99,999, and was the lowest (37%) among individuals with household incomes of $100,000 or more.

ICI emphasizes that this finding does not necessarily suggest that higher-income workers do not find their plans valuable, as more than 90% of those making $50,000 or more agree with the sentiment, “my employer-sponsored retirement account helps me think about the long term, not just my current needs.”

The 11th annual update of ICI’s survey includes the views of more than 2,000 American adults on DC retirement account saving, as well as their reactions to possible policy changes and their confidence in 401(k) and other DC plans. The survey was fielded in December 2018 using the AmeriSpeak research panel, operated by NORC at the University of Chicago.