Donald Lambro

WASHINGTON -- Of all the economic trends in our country today, none is more potentially far-reaching politically than the fantastic growth of tax-deferred 401(k) retirement accounts.

This sector of our economy doesn't get much attention in political and social-issues circles, but interviews with experts in this field reveal the little-known or under-reported impact 401(k) plans are having and will have on our society and our politics.

Introduced in 1981, these investment plans have contributed mightily to the nation's growing investor class, especially among middle- and lower-income Americans, broadening ownership of the economy, boosting the much-criticized savings rate and, many now believe, making the country's electorate more conservative in its voting behavior.

"The 401(k) has done an enormous amount of good for the prosperity and stability of our country," said Heritage Foundation economist Bill Beach. "When citizens have a vested interest in the economy and own more property (or investment assets), the more stable and politically conservative your society will be."

The numbers are astounding and explosive: Since 1990, total worker assets in 401(k) plans have grown by an average of 13 percent a year, from $385 billion to an estimated $2.1 trillion in 2004, the most recent year for which figures are available, says the Investment Company Institute (ICI), which represents the mutual-funds industry.

More than 43 million U.S. workers participated in 401(k) plans at the end of 2004, up from 10 million in the mid-1990s, about a third of the entire workforce. On average, nearly 70 percent of participants' assets in these plans are invested in broad-based, highly diversified stock mutual funds.

The conventional view about savings is that its rate has been in decline for years. But that long-held perception is changing as a result of 401(k) growth, which has not been included in the savings measurement formula.

"There is now a belief it has increased savings, particularly among lower-income households," said Sarah Holden, an ICI economist. "If you have an account that is labeled 401(k), you look at it as something that is not liquid and that you can't spend today. They are accumulating significant (savings) balances."

Stocks can rise and fall with the economy, but 401(k) plans have, to a large degree, been an anchor in the market because their owners are "a tough crowd who stick with it through thick and thin in bear markets," Holden told me.


Donald Lambro

Donald Lambro is chief political correspondent for The Washington Times.