WSJ Your Money Briefing - For the First Time, Half of Private-Sector Workers Are Contributing to 401(k)s

Episode Date: February 11, 2025

Decades after workplaces started using 401(k) retirement plans in place of traditional pensions, they are finally reaching a tipping point. Wall Street Journal reporter Anne Tergesen joins host Ariana Aspuru to discuss why the growth in worker adoption is likely to increase this year. Sign up for the WSJ's free Markets A.M. newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is an ad from BetterHelp online therapy. We always hear about the red flags to avoid in relationships, but it's just as important to focus on the green flags. If you're not quite sure what they look like, therapy can help you identify those qualities so you can embody the green flag energy and find it in others. BetterHelp offers therapy 100% online and sign up only takes a few minutes. Visit BetterHelp.com today to get 10% off your first month. That's betterhelp, H-E-L-P dot com.

Here's your money briefing for Tuesday, February 11th. I'm Arianna Aspuru for The Wall Street Journal. For the first time, half of private sector workers are now saving in 401k retirement accounts. It was very common for people not to participate even when they had access to these plans. And then along comes government policy makers with these sort of behavioral finance nudges, which involve the company basically enrolling you. We'll talk with Wall Street Journal reporter Anne Tururgison about future incentives that could spur millions of workers to save more after the break.

TD Direct Investing offers live support. So whether you're a newbie or a seasoned pro you can make your investing steps count. And if you're like me and think a TFSA stands for Total Fund Savings Adventure, maybe reach out to T.D. Direct Investing. Decades after they replaced traditional pensions, more workers are participating in 401k retirement plans. Wall Street Journal retirement reporter Anne Turgesson joins me. Anne, has this tipping point been a goal for a while? I don't know that policy makers are specifically targeting 50% participation of private sector

workers in 401Ks. They certainly have, for years now, been trying to boost people's access to 401K plans at work. Not every employer out there offers one. So that's been a big goal of policymakers and also trying to get more people in these plans to participate when they have access has been a big goal. But you know, everything moves really slowly in 401k world and about 50 years after we've started 401k plans, they're finally at a sort of a point where 50% of people are participating

and 70% of private sector workers have access. So that's something that we thought was worth writing about. When someone is automatically enrolled into their company's 401k plan, how much of their paycheck is usually contributed to it, like at the beginning? What has arisen and become very popular among 401k plans is something called automatic enrollment. And that's something that regulators in Congress facilitated as long ago as 20, even 30 years ago. But that's really been gaining traction. It used to be that basically when you joined a company, the employer would say, Hey, we have this 401k plan. You need to enroll in it. Here's how to do that. And before the internet, it was all paper-based

and it would take a long time to get the paperwork done. A lot of people just put the paperwork aside, never did it. It was very common for people not to participate, even when they had access to these plans. And then along comes government policymakers with these sort of behavioral finance nudges, which involve the company basically enrolling you.

You know, you're a new employee, hey, we're going to enroll you right away in the 401K plan or, you know, whenever you're eligible, and we're going to take 3% of your pay and put it into a 401K account. Now, 3% was just something that became kind of a common number. Aside from that 3%, if you don't like that 3%, you can go in there and you can raise it if you want. You can say, hey, I can't afford to save at all. You can opt out.

So the savings rate is very much under the control ultimately of the employee. Historically, small businesses haven't been known to offer retirement plans or contribution matches since they have limited funds. What's changed there? A bunch of things have changed. For one thing, Congress passed some retirement-focused legislation. In the past six years, there have been two different bills passed, and both of those

bills contain sort of sweeteners to try to encourage their tax credits, to try to encourage small businesses to start 401k. So that's been maybe making a difference because a lot of the startup costs of the 401k plan can be covered by the tax credits. Another thing is that a lot of states have enacted what amounts to mandates saying that they're going to require companies to either offer their own 401k, or if they don't want to offer a 401k, that's fine. But they're going to require companies to enroll their workers in a state-run savings program,

like retirement savings program, which is based on IRAs, and that's kind of a mandate. I think for a lot of companies that have been thinking about starting 401ks, if they're in one of these states where these mandates exist, those can get them to take action because they know they're going to have to do something, either use the state plan or start their own. And a lot of them who've been thinking about starting their own just go ahead and start their own. Historically, small companies, they've only really had access to pretty expensive 401ks for a variety of reasons. And now, with the advent of these sort of internet-based offerings, the pricing has been declining. So,

that makes it more attractive also to employers to offer one of these. You spoke to some employees of these small businesses about having their retirement savings and having this program. How did they feel about it? You spoke to some employees of these small businesses about having their retirement savings and having this program. How did they feel about it? People I spoke to certainly seem to view it as a positive. We've seen the labor market become more competitive. In recent years, as baby boomers are retiring, there just aren't as many workers out there.

So I think that workers are starting to demand more benefits and employers are responding. They want to attract and retain workers, because it's very costly to hire somebody and then have them quit and then have to go out and find somebody new to do the job and train them. And having these benefits, I think, is increasingly integral to competing in the labor market and hiring people. What do financial professionals advise for someone who's trying to figure out how much they're able to contribute to their 401k? As a general rule of thumb, if you contribute something between 12% and 15% of your salary, combine with an employer match.

So that would be a total including the match every year for your entire 30 year career that you should end up with something that's an adequate amount of savings. Well, I mean, that said, not everybody can do that for a variety of complicated reasons. People with lower incomes often can err on the lower side of that 12 to 15%. People with higher incomes often need to save more. So it just depends on your own personal situation. If you are

just starting a job and you just moved into a new apartment and you have a lot of costs and you are barely scraping by, I mean the idea that you're gonna put 15% into your 401k may seem laughable. Yeah that's funny you say that because I had a very similar experience when I was moving and I was like, you know what, I just like, I don't have it in me to contribute this much right now. I have to buy a bed frame. I have to buy a mattress. But it's one of those things that you have to remember to come back to and adjust as

your life changes, right? Exactly. And sometimes employers increasingly will do the adjustment for you. It's worth trying to figure out if your plan works that way, or if you have to go in and do the increases yourself. Obviously, you know, do what you can. And if all you can do is 3%, then that's going to be good enough until you're able to get a raise, then maybe you can afford to do a little bit more.

That's WSJ Reporter Anne Turkesson. And that's it for your Money Briefing. This episode was produced by Jess Jupiter, with supervising producer Melanie Roy. I'm Arianna Aspuru for The Wall Street Journal. Thanks for listening.