401(k) retirement saving hits a milestone. Has it finally caught on?
Half of all workers in private-sector America now participate in 401(k) plans, a sign that tax-advantaged retirement savings may be catching on at last.
As recently as 2010, federal data shows, barely two-fifth of workers in private industry held 401(k)-type accounts. Between that year and 2024, however, the participation rate tiptoed up to 50%.
Over the past half century, the federal government has been trying to persuade Americans to build savings to cover their retirement, and to supplement Social Security, using tax breaks as a lure.
With participation reaching 50%, it would seem that effort is half successful. To optimistic observers, the 401(k) has nowhere to go but up.
“I think what these stats are showing is steady improvement year over year,” said David Stinnett, head of strategic retirement consulting at Vanguard. “I think it will keep increasing. I think employers understand that this is a retirement benefit that employees care a lot about.”
Other retirement experts note the frustrating flipside: Half of private-sector workers still do not participate in 401(k)s.
“There’s two ways to look at it. Is the glass half full, or is the glass half empty?” said Anqi Chen, associate director of household finance and savings at the Center for Retirement Research at Boston College. “Fifty percent of American workers not having a retirement plan is not fantastic.”
401(k) participation is rising along with access
The simplest reason why more private-sector Americans are participating in 401(k) plans is that more employers are offering them. Between 2014 and 2024, employee access to 401(k)-style plans marched up from 60% to 70%, according to the Bureau of Labor Statistics.
Access to tax-favored retirement plans is widening as more states introduce “automated savings” programs, prodding companies to offer retirement plans and enrolling workers automatically. Collectively, those initiatives have helped employees amass nearly $2 billion in retirement savings.
Starting in 2025, most new 401(k) plans must automatically enroll workers, rather than leave the decision to them.
“We used to spend a lot of time designing education programs to try to entice people to participate in the plan,” said Stinnett, a longtime 401(k) advocate. “Now, people are being defaulted into the plan.”
The COVID-19 pandemic, too, boosted 401(k) participation: In a tight labor market, companies offered retirement savings as an incentive to applicants.
Has 401(k) savings reached critical mass?
The 401(k) and its personal savings counterpart, the Individual Retirement Account, emerged in the 1970s as tools for Americans to build retirement savings. The plans have gradually replaced traditional pensions, which deliver monthly benefits to retired workers.
With half of the nation’s private-sector workers now participating in “defined contribution” retirement savings, some observers sense the long federal campaign has reached a tipping point.
“I think what’s happened is, we’ve gotten smarter about 401(k)s,” said Chris Littlefield, president of retirement and income solutions at Principal Financial Group, the nation’s third-largest 401(k) administrator.
Littlefield points to the trend toward automatically enrolling workers in retirement savings, a step that dramatically boosts participation.
“It’s not that we’re without challenges,” he said, “but we’re closing the gap on the challenges.”
That view is not universal. In a 2024 paper, two economists from opposing ideological camps made the provocative case that the federal government should abolish the tax-sheltered retirement programs, branding them a failure.
401(k)s favor wealthy Americans
Federal data suggests 401(k)s and IRAs mostly help well-heeled Americans.
For households in the top 10% by income, the median retirement account held $559,000 in 2022, according to the federal Survey of Consumer Finances. An overwhelming 93% of those households held retirement accounts.
For middle-income Americans, those in the 40th to 60th percentile by income, the median retirement account held just $39,000. Nearly half of that group had no retirement account.
The goal of the tax subsidies was to encourage more Americans to save for retirement. But the paper notes that participation in employer-sponsored retirement plans seems to have stalled around 50%.
“There’s a group of people that always have retirement plan coverage,” Chen said. "And then you have this group that very rarely or never have retirement plan coverage.”
Access is key to participation. Data from Vanguard shows that average participation in 401(k)-type plans rose from 79% in 2014 to 85% in 2023. When companies automatically enroll workers in retirement saving, participation rises past 90%.
Retirement saving is “one of the few very bipartisan areas” of federal policy, Stinnett said. Congress passed a series of retirement savings initiatives in 2022 as part of SECURE Act 2.0, with support from retirement plan administrators. Among them:
The Saver’s Match
Under the Saver’s Match, starting in 2027, nearly 22 million low- and middle-income employees who contribute to a retirement savings account become eligible for matching funds from the government. The maximum match is $1,000 per person, according to a Pew analysis.
The Saver’s Match replaces the current Saver’s Credit, a nonrefundable tax credit for lower-income taxpayers. The big difference: The Saver’s Credit only reduces the tax you owe. The Saver’s Match puts dollars into your retirement account.
Auto-portability
This initiative encourages workers to “roll over” retirement savings into an IRA if they leave a job, whereupon the money can automatically transfer to a retirement plan at a new employer.
The auto-portability program applies to accounts valued at $7,000 or lower. Research shows workers often cash out low-value accounts, potentially losing thousands of dollars in compounded interest over time.
In 2022, a consortium of private retirement-plan providers announced a collaboration to boost the portability of small retirement accounts.
Auto-enrollment
Starting in 2025, most new 401(k) plans must automatically enroll employees, rather than leave the decision to workers.
Many older 401(k) plans are voluntary, meaning that employees must sign up to participate. Under auto-enrollment, an employee who does nothing opts in.
Auto-enrollment is a powerful tool for saving. Vanguard found that workers with auto-enrollment plans participated at a rate of 94% in 2023, compared with 67% enrollment in voluntary plans.
Long-term part-time workers
As of 2025, part-time employees who work at least 500 hours in two consecutive years are entitled to participate in workplace 401(k) plans. Part-time workers have struggled to gain access to retirement savings.