New 401(k) Plans on the Wane: Should We Be Worried?

Does this data mean Americans’ retirement savings are suffering? Here’s the scoop.

Fewer new 401(k) plans are being launched these days.

That’s according to data from employee benefits research firm Judy Diamond Associates.

A much smaller number of new 401(k)s started in 2013 than 2012, “possibly meaning fewer people are starting businesses or new businesses find 401(k) plans a luxury they cannot afford,” said ALM, an industry publication.

401(k) plans were down 4.4 percent from 2012 to 2013 and 30 percent overall from 2007 to 2013, MarketWatch said. But the report noted that the impact on retirement savings isn’t as bad as it might seem:

The reason: Historically, new 401(k) formation was partially driven by companies launching 401(k) plans to supplement or replace their defined benefit pension plans. But now that 95 percent of companies with defined benefit pension plans also have a 401(k) plan, “there’s not a whole lot more growth” coming from these companies, says Craig Copeland, a senior research associate with the nonprofit and nonpartisan Employee Benefit Research Institute.

Copeland said most of the growth in new 401(k)s is now being driven by smaller companies, which are also concerned with providing health care benefits.

Small employers “typically add health benefits before they add a retirement plan,” Copeland says. Because the Affordable Care Act imposes penalties on certain companies that don’t offer health benefits, it is creating an even “larger incentive to add a health plan before a retirement plan,” he adds.

Copeland said the figures aren’t alarming because the number of Americans enrolled in a pension plan of some sort is actually up compared to previous years. In 2012, 130.6 million people were covered, compared to 129.6 in 2011.

In other 401(k) news, according to Fidelity, the average balance of Americans’ 401(k) plans has gone up 0.5 percent since last quarter and 3.6 percent since one year ago.

In addition, the overall savings rate, which includes both employee and employer contributions, has also increased.

“Contributions to retirement savings accounts have increased across the board, including IRAs, small business plans and traditional 401(k) accounts,” Jim MacDonald, president of workplace investing at Fidelity Investments, said in a statement. “We’re very encouraged by this trend and hope to see it continue, considering that any increase in savings – even by 1 percent a year – can have a positive impact on long-term retirement success.”

For more, check out “How Much Should I Contribute to my 401(k)?

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