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Employers' and employees' long-time love affair with 401(k) plans is stronger than ever.

Added in 1978 to the U.S. Tax Code by federal legislation and sanctified in 1981 by Internal Revenue Service regulations, 401(k) plans are growing at a rate unprecedented in pension plan history.

Last year, 248,000 employers sponsored a 401(k) plan, double the number 10 years before. By 1999, 401(k) plan sponsorship could top 300,000, assuming a modest 6.5% annual growth rate, according to Access Research Inc., a unit of SpectremGroup, a San Francisco-based consulting and research firm.

Among employers with more than 5,000 employees, 95% sponsor 401(k) plans, while 80% of those with 1,000 to 5,000 employees sponsor a 401(k) plan.

As the number of 401(k) plans has grown, so have the number of participants, which last year totaled just under 24 million compared with nearly 11 million in 1986.

According to Windsor, Conn.-based Access Research, assets held by the plans between 1986 and 1996 grew at a compound rate of 18%, rising to $810 billion from $155 billion -- thanks to bigger employee contributions and a booming stock market.

"You have a lot more plans, with more eligible employees, who participate at a higher rate. The result is a lot more money in the plans," said David Wray, president of the Chicago-based Profit-Sharing/401(k) Council of America, a trade group that represents plan sponsors.

So ubiquitous have 401(k) plans become that it now is virtually unheard of for a large employer not to have one, said Michael Sternklar, a principal at The Kwasha Lipton Group in Fort Lee, N.J.

Even the smallest of companies now have 401(k) plans.

"We are trying to recruit top talent and we hope this benefit will help us in our objective," said Stacey Paradise, accounting manager at Abtex Corp., a 12-employee abrasive disk manufacturer in Dresden, N.Y., which began to offer a 401(k) plan in January.

Why 401(k) plans have achieved such popularity among both employers and employees is no mystery.

For employees, the plans give them tax breaks that no other pension program can match. Their contributions are made with pre-tax dollars and earn tax-deferred interest.

"You don't have to be a rocket scientist to conclude" that the tax breaks would be a powerful draw, said Ted Benna, president of The 401(k) Assn. in Cross Fork, Pa.

The visibility of a growing account balance also has made the plans a hit with employees, especially compared with traditional defined benefit plans under which benefits are determined by often arcane formulas.

"It is a much more tangible benefit" compared with many defined benefit plans, which can seem like a "black box" to employees, said Robert Cornett, vp-human resources at UNUM Corp. in Portland, Maine.

And perhaps the greatest appeal to employees -- at a time when many think they will only stay a few years at one company before moving on -- is that 401(k) plans represent the ultimate in benefit portability.

When employees leave, they can take the money, roll it into an individual retirement account, transfer it to their new employer's 401(k) plan or keep it in their former employer's plan.

"Younger employees today no longer think of spending 30 years with one company. They want to be able to take something when going from one employer to another without losing something. They want something portable," said George Dascoulias, project manager-retirement savings plan at Eastman Kodak Co. in Rochester, N.Y.

For employers, 401(k) plans also are something akin to dream plans. The cost is predictable and typically much lower than a defined benefit plan and the administrative hassles -- compared with defined benefit plans -- are usually much less.

"This is a very easy plan to administer. For the most part, our administrator (The Principal Financial Group) handles everything," said Ms. Paradise of Abtex Corp.

An added bonus for employers: employees love and appreciate the plans. At Kodak, for example, its 401(k) plan is so popular that it is "part of our culture," said Mr. Dascoulias.

However, some companies with generous profit-sharing plans have not converted them to 401(k) plans.They reason that most lower-paid employees would never be able to save enough to generate a company match equal to what the company contributes to the profit-sharing plan.

Despite 401(k) plans' popularity, there are some misgivings about the plans' growth, which has paralleled a steady decline in the number of defined benefit plans.

From 1986 to 1996, the number of defined benefit plans fell to 48,000 from 112,000.

One of the biggest concerns with 401(k) plans is whether employees will turn against the plans -- and perhaps the employers that sponsor them -- if the stock market plunges and employees' 401(k) plan account balances fall with the market.

"What if there is a bear market? A lot of retirement hopes and dreams could be dashed. There could be considerable backlash," said Raymond Sharp, a principal and consulting actuary with Buck Consultants Inc. in Secaucus, N.J.

While that remains to be seen, pension experts say even if employees' account balances are clipped by a fall in the market, many employees still will be far better off than if their employers had not set up a 401(k) plan.

"Millions of employees are saving money for retirement that would not in all probability have been saved," said Dallas Salisbury, president of the Employee Benefit Research Institute in Washington.

Many small employers, without the 401(k) plan option, might not offer any savings plan. At The Principal Financial Group, the largest administrator of 401(k) plans, about half of the new 401(k) plans set up each year are for small employers that did not previously offer a savings plan, said Dick Prey, a senior vp with the Des Moines, Iowa-based company.

One of the consequences of the growth of 401(k) plans and telling employees how much money is in their account balances is that it has focused employees on the need to save for retirement.

"This is not like a traditional plan where benefits are calculated at the end of a career. In a 401(k) plan you watch your money grow. It is a good thing to recognize the connection between saving now and having something later," said Mary Ann Arlt, vp and consulting attorney with ASA Inc. in Somerset, N.J.

Unlike defined benefit plans, in which employees often are passive and indifferent participants because they have no role in investing contributions, 401(k) plans have forced employees to be active participants.

Employees must choose the level of their contributions and to which investment options the contributions will go.

"This has made employees partners in the retirement planning process. They have to decide how much to save and what kind of investments they want to make," said Donald Smith, director of human resources at AT&T Alascom in Anchorage, Alaska.

While perhaps unintended, the hand of Congress also has increased the expansion of 401(k) plans.

By tightening certain non-discrimination tests in 1986, legislators forced employers to do a better job of getting lower-paid employees to participate in order for the plans to allow higher-paid employees to make generous contributions to the plans.

"Employers realized they had to do something (to boost participation) and what they did was education, education, education," said Gary Blank, a retirement plan consultant in San Francisco.

Employers' efforts to teach employees the mechanics of 401(k) plans and the importance of contributing to the plans have worked. Participation rates among employees have soared, climbing to an average of 78% last year, up from 71% in 1990 and just 62% in 1984.

"There has been a real focus on getting employees to participate, and that is paying off," said Scott Peterson, a consultant with Hewitt Associates L.L.C. in Lincolnshire, Ill.

Technology also has boosted the appeal of 401(k) plans. Technological advances, for example, have enabled employers to offer literally dozens of investment options in the plans while giving employees the opportunity to change their investment choices -- in some cases daily. That many options was unimaginable only a few years ago.

"Who would have thought we would offer 36 investment options?" asked Kodak's Mr. Dascoulias. "But the way technology is going, what is pie in the sky today could become commonplace in the future."