WASHINGTON — Younger workers can count on 401(k) plans to replace just a modest percentage of their income when they retire in the middle of this century, according to a new study that highlights the need for changes in the nation's pension system, members of Congress said Tuesday.
Overall, just 36% of workers had savings in 401(k) or similar retirement plans in 2004, with participation practically disappearing among the lowest-paid workers, the Government Accountability Office reported. For those who had such retirement savings, the typical account balance was $22,800, the study found.
Policymakers are increasingly focusing on the adequacy of 401(k) and similar savings plans because they have become more common than traditional pensions, which guarantee set monthly payments in retirement.
"Unless we act now, too many workers just starting their careers today will unfortunately face a less secure retirement than did many of their parents," Rep. George Miller (D-Martinez), chairman of the House Education and Labor Committee, said in a statement. "Today's workers will more likely struggle to make ends meet during retirement than previous generations."
Plans should be changed to enroll workers immediately, attract more low-income employees and limit the "leakage" of assets when workers change jobs and spend their nest eggs rather than reinvest them in new accounts, Miller said.
Advocates of 401(k) plans say they can amply reward those who save diligently for a period of years. Enthusiasts also maintain that such plans are well suited to the modern economy, in which people change jobs frequently.
Critics, however, say 401(k) plans have provided insufficient protection for many workers.
The study was based on a Federal Reserve survey of consumer finances, using 2004 data. Among the weaknesses it highlighted:
* Low-income workers are largely left out of the 401(k) system. Though 36% of people overall participated in such retirement plans, that figure plunged to 8% for those in the bottom 25% of the income ladder.
* Savings levels often are not sufficient to finance retirement. The typical account balance rises to $50,000 for workers between ages 55 and 64. But a 65-year-old who bought an annuity with this amount could get just $4,400 a year in income, researchers said.
