UPDATE 1-Retirement bleak for low-paid with 401(k)'s-study
(Adds Miller, Andrews comments, background, byline)
WASHINGTON, Dec 11 (Reuters) - Many younger U.S. workers, especially the lowest paid, are saving little or no money toward retirement in worker-managed pension plans such as 401(k)s, said a congressional study released on Tuesday.
Painting a bleak picture of retirement for many Americans, the study from the Government Accountability Office (GAO) came as congressional Democrats move toward 401(k) plan reforms.
Known as defined-contribution (DC) pensions, worker-managed plans have become the dominant form of retirement savings over the past 25 years for U.S. workers, largely replacing traditional, employer-managed defined-benefit pension plans.
"Our findings indicate that DC plans can provide a meaningful contribution to retirement security for some workers but may not ensure the retirement security of lower-income workers," said the GAO, the investigative arm of Congress.
More than $2 trillion is invested by U.S. workers in 401(k) plans, named after a section of the U.S. tax code. Money is invested into the plans through pretax payroll deductions.
As employers have abandoned traditional pension plans, 401(k)s have become a key part of many workers' retirement plans, along with Social Security, profit-sharing and stock ownership plans and individual retirement accounts, or IRAs.
But the GAO report said 2004 data showed that only 36 percent of workers participated in a current DC plan.
For all workers with a current plan or a former one, the total median account balance was only $22,800, it said.
Median balances were higher for workers aged 55 to 64 at $50,000, and for those aged 60 to 64 at $60,600.
Looking ahead, the GAO projected that workers born in 1990 at retirement would be able to replace only 22 percent of their annual earnings with DC plan savings.
"Projections show almost 37 percent of workers reaching retirement with zero plan savings," the GAO said.
It said projections also show low-income workers with projected income replacement rates of 10.3 percent on average, with 63 percent of them having no plan savings at retirement.
"This is a fiscal time bomb, as well as a personal tragedy for a lot of people," said New Jersey Democratic Rep. Robert Andrews on a conference call with reporters.
"Unless patterns change, there is very bad news ahead for tens of millions of people. The good news is we have some time to do something about it," Andrews said.
California Democratic Rep. George Miller told reporters he aims to move a bill to the House of Representatives floor for a vote soon. "It's our intent to do it the first couple of months we're back" after the holiday break, he said.
Miller has introduced legislation that would require 401(k) plan providers to disclose important information more clearly and more thoroughly to plan participants, such as fees, risks and returns. It would also require plans to include at least one lower-cost, balanced index fund in its investment line-up.
Miller and Andrews signaled possible future reform efforts might target eliminating long vesting periods that prevent new employees from getting the full benefit of 401(k) enrollment.
Miller, the House Education and Labor Committee chairman, called for "serious consideration of immediate enrollment."
Andrews said consideration should also be given to default requirements that would automatically enroll workers in a 401(k) who take no action either to opt in or out of a plan. (Reporting by Kevin Drawbaugh; Editing by Brian Moss)
