Table 2
Median Total Financial Asset Balances, 1991 ($)
Income Interval
Eligibility Status
<$10k
$1020k
$2030k
$3040k
$4050k $5075k
>$75k
Eligible for 401(k)
2,033
4,045
5,499
8,683
14,470
26,093
51,080
Not Eligible for 401(k)
1,378
1,997
2,558
3,256
6,206
10,080
29,842
Source: James M. Poterba, Steven F. Venti, and David A.Wise, "Do 401(k) Contributions Crowd Out
Other Personal Saving?" Journal of Public Economics 58 (1995): 132.
hoped to reconcile the interests of labor and
workers' financial risk.
management through stock ownership in
the employer's company. As mentioned
Individual Retirement Accounts (IRAs)
above, the theory was limited by the frequen-
IRAs remain the private investment of
cy with which individual stocks crash. But
choice for workers who lack access to a tax-
employee ownership continues to thrive
deferred plan with an employer match. Within
among two types of companies: industrial
limits, annual contributions to traditional
The mutual-fund
giants and young tigers.
IRAs are deductible and can accrue value tax
holdings of pri-
Stock option plans allow workers to buy
free until retirement. The Tax Reform Act of
vate pension
shares in their company at a fixed "grant
1986 lowered allowable tax-deferred contribu-
price" over a defined time span. Typically,
tions to IRAs for participants in 401(k) and
plans grew from
only a certain percentage of the guaranteed-
other defined contribution plans. As a result,
$29.2 billion in
price shares can be purchased for each year of
the proportion of tax filers contributing to
service. For a young company experiencing
IRAs declined precipitously, from 15 percent in
1990 to $457.0 bil-
dramatic growth, this is a way to finance
1986 to 4 percent in 1994.
lion in 1997.
worker benefits directly from that growth.
But total assets in IRA accounts have
Stock options are the rule rather than the
continued to grow, and recent laws will
exception among high-tech companies.
accelerate the trend. One, effective this year,
Originally an incentive for upper man-
increases deductible contributions on
agement, stock options are increasingly
behalf of nonworking spouses. The other,
used as a general benefit. In 1998, 6 million
known as the "Roth IRA," is designed for
nonmanagement employees had grant-
investors who anticipate substantial income
price stock options.2 4 In 1997, 22 percent of
in retirement. The Roth accounts, like tradi-
401(k) assets were invested by employees in
tional IRAs, are taxed only once. But the
the companies for which they worked.2 5
levy is timed in reverse. The investor buys
The most famous worker ownership tool
his Roth with after-tax income, then with-
is the Employee Stock Ownership Plan or
draws his earnings tax free after retirement.
ESOP. ESOPs hold roughly $213 million in
Assets invested by individuals in tax-
company stock.26 The 8.7 million ESOP par-
deferred IRAs grew from $200 billion in
1985 to $455 billion in 1989, $746 billion
ticipants are all, of course, stockholders.
in 1992, and $1.347 trillion in 1998.27 In
ESOPS have the advantage of giving workers
a stake in the companies' performance. They
1997, 58 percent of all investors held stocks
in IRA accounts.2 8
have the drawback of failing to diversify the
9