Honey, I Shrunk the 401(k) CFO (08/01/02) Vol. 18, No. 8 p.55; Frieswick, Kris
Employers are starting to take notice as defined benefit plans, defined contribution plans, and hybrid plans become more popular among workers with shrinking 401(k)s. One survey finds 24 percent of employees, up from 19 percent a year ago, want access to defined benefit plans, and recent laws lifting limits on maximum benefits and contributions for pension plans are prompting more small companies to consider defined benefit plans. When 401(k) plans became popular in the 1980s--401(k) participants grew from 7 million in 1983 to 42.1 million in 2000--they allowed employees to track their plan earnings and helped employers cut costs. Experts note however, that despite the popularity of 401(k)s, employees remained relatively ignorant of how to actively mange their investments. Today's stock market decline has left many investors with 401(k) plans smaller than their initial contributions and provoked some employers to reevaluate the retirement plans they offer. In the past few years a variety of defined benefit and defined contribution plans have developed; some employers have considered implementing a plan consolidating a defined benefit plan with a 401(k) plan, and many are urging Congress to lift limits on defined benefit plan administration and draft new rules for managing retirement savings.