Back in the old days, your employer would pick up your pension tab. From auto industry assembly line plants to corporate offices filled with row-upon-row of white-collar workers, most anyone earning a paycheck was part of what was called a defined benefit pension plan. That meant the employer, not the worker, paid for and managed the funds that would one day show up in a monthly pension check.
That changed in the late ‘70s and early ’80s when the 401(k) came onto the employee benefits scene. The responsibility–and the risk–of saving for retirement were shifted to the worker. On the surface, it was not a terrible idea to give the individual a hand in preparing for retirement. But while fund managers and employers pushed 401(k) plans as a sure way to build million-dollar retirements nest eggs, they didn’t always offer much information about the risks of investing. And today, millions of 401(k) plan participants are seeing a creeping erosion of their account balances as the stock market plunges.
In a recent column, commentator Marie Cocco points out the over-the-top gushing that was used to sell 40l(k)s as get-rich-quick schemes:
The 401(k) "seemed good to media observers, and to the politicians who nurtured the do-it-yourself retirement with successive legislative schemes. During the stock market boom of the 1990s, esteemed business publications published breathless articles featuring manufacturing workers who would use their lunch breaks to track their mutual fund balances and ponder the possibilities of the loan they would take out for a cabin on the lake or an anniversary trip to Hawaii."
In a MarketWatch story, Alan Glickstein, a retirement consultant with the global business firm Wyatt Watson, offers another observation on the real-life implications of 401(k)s’ untested financial guarantees:
"We are in uncharted territory. The 401(k) plan has been around for less than 30 years, and we’ve not yet had a generation of workers retire on all or mostly 401(k) assets. What happens when market volatility makes 401(k) investment returns and retirement income anything but predictable?"
Since last year, the government has allowed employers to automatically enroll workers in 401(k) plans under a regulation issued by the Labor Department as a way of boosting plan participation, which stalled at around 78 percent.
Are 401(k)s still a good way to save for retirement? Can there be a silver-lining in 401(k)s for low-wage workers? Given what has happened to investment balances in the recent stock market decline, is it still a good idea to privatize Social Security? Do you think it’s a good idea, as Barack Obama and John McCain have proposed, to let millions of Americans withdraw money now from their retirement accounts?
- Thinking of raiding your 401 (k)?
- The Fallacy of the 401 (k)
- Financial Crisis Recasts Debate on Pensions Versus 401 (k)s
- The 401 (k) could prove a history-making fiasco
- Social Security Bulletin
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