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Barbara Whelehan writes Boomer Bucks for Bankrate.com

Nudge your boss to start 401(k) plan

The 401(k) plan turned 25 earlier this month. Go ahead, let out a big cheer!

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It's an anniversary worth celebrating. Some 47 million people contribute to 401(k) plans, which collectively held $2.4 trillion in assets at the end of last year. Meanwhile, only about 21 million people in the private sector have old-fashioned defined-benefit plans, which hold about $1.9 trillion in assets.

While the 401(k) plan was originally supposed to supplement traditional pension plans, over the years it and its 403(b) and 457 cousins have become the most important retirement vehicles for working Americans.

Why not? The 401(k) plan has many advantages. You get an upfront tax savings since the money, in most cases, is saved on a pretax basis. Many workers get matching contributions (which is basically free money) from their employers. On top of that, it's portable, meaning you're not stuck working at a job you hate for your entire life just because you stand to collect a pension at the end of your career. Once you leave an employer, you can usually roll 401(k) assets into the plan at your new job or you can move them into a rollover IRA.

Yet believe it or not, investing in a 401(k) plan is not an option for everyone. In fact, according to The Retirement Security Project, just under half of working Americans had access to a 401(k) plan in 2004.

Small-business blues
Large companies generally are good about offering 401(k) plans to workers and some still offer a traditional pension. But employees of small firms are not as lucky, since smaller businesses are much less likely to offer any retirement plan at all.

ShareBuilder, an online brokerage firm, recently surveyed the owners of 507 very small businesses ranging in size from one to 50 employees.

Among the findings:

The businesses that did not offer a 401(k) plan offered these reasons:

  • Not enough employees to make it worthwhile.
  • Unable to afford a company match.
  • Concerns about the stability of their business.

Most businesses that do offer a 401(k) plan indicated that their main reason was to attract and retain employees.

Here's the most shocking finding: "The vast majority of small businesses that don't currently offer 401(k) plans indicate they haven't been approached by employees to start one," according to the survey.

 
 
Next: "Speak up, American workers!"
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