401K Savers Aren't Shifting Funds They're Saving More

Are so-called 401(k) savings plans a major stimulus for new savings, or do they, as some critics have claimed, merely attract money that would have ended up as savings in some other form? The question is more than academic. Such plans have become the fastest- growing employee benefit, garnering over $50 billion a year in pretax contributions from more than 15 million workers (and their employers, who usually provide some matching funds).

In a new National Bureau of Economic Research study, economists James Poterba, Steven Venti, and David Wise looked at the savings behavior of households with similar characteristics--except for their eligibility to participate in 401(k) plans. They found that 401(k)-eligible households saved just as much outside of their plans as noneligible households, but that their total savings were considerably higher when 401(k) funds were added to the tally.

In short, the evidence strongly suggests that 401(k) plans have significantly boosted private savings.