Americans held $7.3 trillion in 401(k) plans as of June 30, 2021, according to the Investment Company Institute. And the typical wealth held in an American family’s 401(k) has more than tripled since the late 1980s. With the widespread adoption of 401(k) plans, it might surprise you that they’re a relatively new employee benefit—and one that was created unintentionally by lawmakers.
Today, public and private sector employees alike use a 401(k)—or the nonprofit equivalent, a 403(b)—in order to plan for a comfortable retirement. In essence, a 401(k) allows an employee to forgo receiving a portion of their income, instead steering it into an account where the money can grow through investments. Unlike pensions, these retirement plans put more of the planning decisions—and responsibility—on employees rather than the company.
Employers can contribute to an employee’s retirement savings by matching the contributions to a 401(k) account up to an amount decided by the employer.
“The savings comes off the top, so a lot of people don’t miss their money when it’s going into their 401(k),” Ted Benna, the man long-credited for introducing the 401(k) to corporate America, told Forbes in 2021.
Whether or not that savings that “comes off the top” yields small or large returns is influenced by the employee’s age, tolerance for risk as well as market conditions over the lifetime of the account.
To illustrate how Americans’ retirement savings have evolved over the decades, Guideline compiled a timeline on the evolution of the 401(k), drawing on research from the Employee Benefit Research Institute, the Investment Company Institute, and legislative records.