holden and jack vanderhei ( 2004 ), “ 401 ( k ) plan asset allocation, account balances, and loan activity in 2003, ” ici perspective ( august ). brigitte madrian and dennis shea ( 2001 ), “ the power of suggestion : inertia in 401 ( k ) participation and savings behavior, ” quarterly journal of economics. james choi, david laibson, and brigitte madrian ( 2004 ), “ plan design and 401 ( k ) plan savings outcomes, ” nber working paper w10486. shlomo benartzi and richard thaler ( 2004 ), “ save more tomorrow : using behavioral economics to increase employee saving, ” journal of political economy. instituted to promote financial security. for their part, workers have a responsibility to improve their financial literacy and develop the skills and confidence to practice strategies for effective financial management. this improvement of financial literacy will become even more crucial if individual accounts are introduced as a modification to the current social security system, as proposed by the administration.

susan schmidt bies : the economy and challenges in retirement savings remarks by ms susan schmidt bies, member of the board of governors of the us federal reserve system, to the financial executives international baltimore chapter, baltimore, 18 january 2005. * * * i am very pleased to join you for this meeting of the baltimore chapter of financial executives international. today i want to begin with a brief assessment of the economic outlook before discussing financial conditions of households and businesses in more detail. then, i will turn to some important trends in retirement savings, including the responsibilities that both businesses and households have in planning for the financial security of workers later in life. i also need to add that i am expressing my own opinions, which are not necessarily those of my colleagues on the board of governors or on the federal open market committee. the economic outlook as you know, the economy has been expanding at a healthy pace lately. real gross domestic product grew at an annual rate of 4 percent in the third quarter and growth in the fourth quarter looks to have remained solid, although the further widening of our trade deficit was disappointing. labor markets have continued to improve gradually, with private nonfarm payroll employment posting a sizable gain in 2004. consumer spending appears to have been robust during the holiday season, despite some restraint from higher energy prices, and business outlays for capital equipment are on an upward trend. and with financial conditions still accommodative, i expect that the economy will continue to expand at a solid pace this coming year. on the inflation front, broad measures of consumer inflation have risen somewhat faster than they did in the year - earlier period, boosted by higher energy prices. focusing on the core price index, which excludes food and energy, it has been a bit higher than it was the year before. this reflects changes in the pattern of prices of goods ( as opposed to services ) purchased by consumers, as prices of goods that had been falling in 2003 began to stabilize and rise slightly in 2004. these effects should taper off and i expect that core inflation will remain in its current range. moreover, surveys indicate that inflation expectations over the longer - term appear to have remained well - anchored. i believe that, with underlying inflation expected to moderate, the federal reserve can continue to remove its policy accommodation at a measured pace, consistent with its commitment to maintain price stability as a necessary condition for maximum sustainable economic growth. household financial conditions continued economic expansion depends importantly on consumer spending, so let me spend a few