Critics of 401(k)s argue that they will not deliver on what they promised. But MSN Money reports that the Employee Benefits Research Institute (EBRI) has provided empirical evidence that their assessments may be very much off the mark.
To illustrate, EBRI examines the way workers age 25-29 save for retirement. It says that 401(k)s are a good investment for lower-income workers in that age group who are eligible for a retirement plan for 30 to 40 years, projecting that they would have income replacement during retirement that would be 15 percentage points higher if they participated in a 401(k) rather than a traditional defined benefit plan.
And that effect is amplified for employees in that age group who earn more — income replacement for those with a 401(k) is 21 to 30 percentage points more than for those who participate in a DB plan.
EBRI notes, however, that these results depend on a certain rate of return on the investments in which those 401(k) funds have been put. For lower-income workers and those who earn just more than they, if there is a significant drop in the rate of return employees in those groups realize with their 401(k), their income replacement at retirement would be slightly higher with a DB plan. But for the highest-income groups, says EBRI, even with a lower rate of return a 401(k) would do better with a 401(k) than a DB plan.
John Iekel is Senior Writer and Editor for ASPPA Net and NTSA Net.
- Log in to post comments