skills to formally evaluate the alternatives. and, in fact, recent research has found some troubling patterns : many workers do not participate in their employers'retirement plans, contribute a small proportion of their wages, and make questionable investment and distribution choices. let me just take a minute to cite some telling facts about 401 ( k ) plans. despite the tax advantages of 401 ( k ) contributions, one - quarter of workers eligible for 401 ( k ) plans do not participate at all, even when their employers would match a portion of their contributions. these workers are effectively turning down a pay raise by leaving compensation on the table. and many who do participate save just a little. in a survey last year, one - quarter of firms reported that their rank - and - file 401 ( k ) participants saved an average of less than 4 percent of pay. how will these plans affect retirement security in the long run? several studies suggest that many workers are not saving adequately for retirement. in 2001, among households with retirement accounts who were approaching retirement age, one - half had balances of less than $ 55, 000, and one - quarter had balances of less than $ 13, 000. clearly balances of this size will not be adequate to finance many economic emergencies and will barely supplement social security over the two or three decades that often follows retirement. there are other concerns about the way in which employees manage their 401 ( k ) plans. some seem to give little attention to the way their contributions are invested. for example, some participants divide assets equally across all available investment options, or simply invest contributions according to plan defaults. and, as was made painfully clear last year, many 401 ( k ) participants seem to invest heavily in employer stock. overall, about one - quarter of aggregate 401 ( k ) balances are in company stock, but for many employees the share is far higher. why do workers invest so much in company stock? the question is particularly pressing because workers'financial outcomes are already heavily dependent on the fortunes of their employer. moreover, employers often require that the matching contributions they make on behalf of their employees be invested in company stock. thus, when employees invest their own contributions in the company stock, they are ratcheting up an already - risky position. elementary finance theory suggests they shouldn't do it. deloitte and touche, 2002 401 ( k ) annual benchmarking survey. deloitte and touche, 2002 401 ( k ) annual bench

susan s bies : retirement savings, equity ownership, and challenges to investors speech by ms susan s bies, member of the board of governors of the us federal reserve system, at a joint presentation to the national economics club and the committee on the status of women in the economics profession of the american economic association, washington, d. c., 27 february 2003. * * * good afternoon. i am delighted to be here to speak about some of the new challenges and opportunities that american families face from changes in retirement savings and equity ownership in the united states. i know that many of your members are economists who work in policy advisory roles in government. as an economist who enjoys getting back to her ph. d. roots, i want to also address how traditional economic theory about consumer behavior and corporate governance are, at times, in apparent conflict with the practices that we observe. this in turn raises issues about the appropriate economic and policy frameworks for decisionmaking. there has been a dramatic shift in employer - sponsored retirement plans over the past two decades - a shift from plans in which pension managers controlled most investments and retirees received preset benefits to plans in which workers directly control their investment portfolios and keep their investment returns. many american families have responded by purchasing corporate equity - frequently through investments in mutual funds or other institutional accounts. with increasing control over their pensions, and broader participation in equity markets, americans have far more options for financial planning than they did twenty years ago. but with the new opportunities come risks and responsibilities. households with more control of their resources for retirement have a greater need to employ sound financial planning. moreover, though many might be unaware of it, stock - owning households share responsibility for oversight and governance of the corporations they own. the headlines of the past couple of years have highlighted the importance of these risks and responsibilities. we have all witnessed a precipitous fall in stock prices and some spectacular corporate failures and have read accounts of retirement savings accrued over long careers only to be lost in a matter of weeks. some of those corporate meltdowns were accompanied by the revelation of shoddy auditing practices and stock analyses tainted by conflicts of interest. and those who should have been ensuring sound corporate governance were often unwilling or unable to protect the interests of shareholders. recent developments suggest that households may, in coming years, take on even more responsibility for their retirement saving and assume additional responsibilities for corporate governance. the president's recently released budget for 2004 would considerably expand taxpre