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401(k) Participation Off In 03

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Despite a recovery in the stock market, fewer employees were participating in 401(k) retirement plans last year, according to a recent study.

Conducted as an annual survey by the Profit Sharing/401(k) Council of America, the study shows that 76% of eligible employees participated in their companys 401(k) plans in 2003, down from 80% in 2002. The study was compiled from the responses by sponsors of nearly 1,200 retirement plans of various sizes. Combined, the respondents plans represented over 3.4 million participants and held assets worth about $12 billion.

David Wray, president of the PSCA, noted that the declining participation also may be an indication that employers have begun to look beyond such plans when offering retirement savings programs. Additionally, he said, many are taking advantage of opportunities afforded to them by Congress, most notably in the Economic Growth and Tax Relief Reconciliation Act of 2001.

“According to this years survey results plan sponsors are taking advantage of many of the beneficial changes in EGTRRA 2001,” Wray said, adding that sponsors “are moving to results-based solutions like investment advice and professionally managed accounts and have returned company contributions to normal levels.”

Signed into law by President Bush in June of 2001, EGTRRA increased the allowed amount an individual can contribute to their retirement plan and also provided a special “catch-up” provision allowing individuals over 50 to contribute even greater amounts in one taxable year.

The study showed that employer contributions rose on average to 3% of pay, a slight increase but still short of the 1999 level of 3.3%, which occurred before the stock market decline began eroding companies profitability.

While the number of employees participating in their 401(k)s has declined, the number of funds being offered has increased. Plans offered an average of 17 funds to participants last year, compared with only 15 in 2002.

Reproduced from National Underwriter Edition, October 7, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.