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Retirement Planning > Retirement Investing

EBRIICI: 401(k) Plan Design Affects Contributions

By Staff Writer

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NU Online News Service, Oct. 17, 10:41 a.m. – Participants in 401(k) retirement plans contributed an average of 6.8% of their gross, pretax salaries to their retirement accounts in 1999, according to a new analysis from the Employee Benefit Research Institute, Washington, and the Investment Company Institute, Washington.

Workers make almost all of their contributions on a pre-tax basis, EBRI and ICI report.

EBRI and ICI researchers based their findings on analysis of the behavior of 1.7 million 401(k) plan participants included in an EBRI/ICI retirement plan database.

Other findings from the analysis:

  • EBRI and ICI analysts say they have confirmed earlier findings suggesting that contribution rates are higher when plans allow participants to borrow from their accounts.
  • Employer matching contributions also increase average total contribution rates. The average total contribution rate was 10% of salary for employees in plans offering an employer contribution, compared with 7.4% for those in plans not offering an employer contribution.
  • Plan-imposed contribution limits keep some participants earning more than $40,000 a year from contributing as much as the tax code allows. When the EBRI and ICI researchers looked at workers in that income range who failed to reach the statutory contribution limits, it found that plan-imposed rules kept half from reaching the limits.

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