An Update on 401(k) Plans: Insights From the 2007 SCF

The maturation of the 401(k) system and the enactment of the Pension Protection Act of 2006, which made 401(k) plans easier and more automatic, were expected to enhance the role that 401(k)s played in the provision of retirement income. So, originally, the release of the Federal Reserve’s 2007 Survey of Consumer Finances (SCF) seemed like a great opportunity to re-assess 401(k)s. The SCF is a triennial survey of a nationally representative sample of U.S. households, which collects detailed information on households’ assets, liabilities, and demographic characteristics. Of course, the 2007 SCF reflects a world that no longer exists. Interviews were conducted during the late summer and early fall when the Dow Jones was at 14,000 (the peak was October 9, 2007) and housing prices were only slightly off their peak. While the economic crisis had already begun, its effects were not yet visible. Since the time of the interviews, the stock market has imploded, reducing the value of equities in 401(k) and IRAs by about $2 trillion. Housing prices have fallen by 20 percent. And the crisis has spread to the real economy, throwing 3.6 million people out of work...