Salon: Abolish the 401(k)

[marmar]

Abolish the 401(k)
The real crisis facing America's aging society is not Social Security, but private retirement plans

By Michael Lind


(Salon) America’s retirement security policies are facing a major crisis. No, not the problem that Pete Peterson, Alan Simpson and Erskine Bowles and other so-called deficit hawks have become famous for exaggerating — the relatively minor mismatch between promised Social Security benefits and scheduled Social Security payroll taxes in the 2030s. The real crisis facing current and future retirees in America’s aging society is the failure of the private components of America’s mixed public-and-private retirement system.

When Social Security was created in 1935, it was not intended to be the sole source of retirement income for most Americans. It was assumed that employer-provided defined benefit pensions with guaranteed payouts would supplement Social Security checks for many workers after they retired.

Unfortunately, employers have been abandoning defined benefit pensions for decades. The number of private sector workers with defined benefit pensions has fallen from around 40 percent in 1980 to a mere 15 percent today. At the same time, among public sector workers, poor management by state governments, combined with years of economic trouble, has created a crisis for public pension systems in many states.

In order to save money and shift risks to individual workers, employers in the last generation have been switching from defined benefit plans to defined contribution plans like 401Ks. 401K retirement plans and other defined contribution plans, including individual retirement accounts (IRAs), now cover about 42 percent of the workforce as opposed to only about 17 percent in 1979. ......................(more)

The complete piece is at: http://www.salon.com/2013/04/04/abolish_the_401k/?source=newsletter

[antigop]

1. The financial industry makes more money off of 401(k)'s than defined benefit pensions. nt

[antigop]

2. I agree with the article (gave it a rec), but it will be VERY difficult to change. nt

[still_one]

3. Don't get rid of 401Ks, but allow people to self-direct the funds, instead of only offering limited

choices with high loaded fees.

[badtoworse]

6. I have been in 6 different 401k plans and have not found limited choices to be a problem

Nor have I found high fees to be a drag on returns. Aside from the inability or outright failure to fund a 401k, the biggest problem I see is profound ignorance about investments on the part of many plan participants. Giving such an investor more latitude to direct his investments would make the problem worse, not better.

I've been fortunate with my 401k's, plus I consider myself to be knowledgeable about investing. Unfortunately, I think I'm an exception here.

[still_one]

8. It is changing, but one of the companies I worked for charged 2% in fees for their funds. A lot of

companies are now allowing self-directed 401Ks, which is the way it should be

[badtoworse]

13. Is the 2% at the fund level or is it a company charge on top of that?

I've always liked Vanguard funds because their fees tend to be low. 2% is a bit high and if it's on top of what the fund manager charges, it's an outrage.

[still_one]

16. It was the management fees. Vanguard is the lowest and best.

[4Q2u2]

23. Father of 401k

http://money.msn.com/saving-money-tips/post.aspx?post=eb9632ff-1d35-44ad-bf77-349f8492a081

[still_one]

24. interesting article. The creator stills thinks it has provided positive savings for many. Problem

Is most people do not want to save, or feel they can't because they cannot afford it.

[4Q2u2]

26. Nor Have the Promised Returns Been There

As well as the retirement life span was far different when they were concieved. 401K as we all know have left and right parameters. You start a zero and end with x. That has to last how long? The defined pension does not have a right parameter. You start at zero and collect until you die. Lifetime security with the defined pension. Seems to be a pretty easy choice.

[still_one]

30. You are correct about the returns. Some of that due to the high fees and restricted funds they

Offer. Another one which does not seem that good is the 529 s for your child's education, those returns are not there either

Frankly I think a lot of the problems started with the programmed trading, dark pools, shorts without the underlying security, and so many other games that destroyed many small investors

[4Q2u2]

31. Winners

As we know the way the Stock market works. There have to be losers, for there to be winners. Pretty easy to spot who won in that shell game.

529 Rate of return, saw anywhere from 3 to 7 %.

Tution rate of increase is anywhere from 4.8% above inflation to over 19%. Over 20 yr period some are almost 500% above inflation.

No way to catch up.

[still_one]

32. Wow, I didn't know the exact figures. Geez

[4Q2u2]

33. Sample

http://www.bloomberg.com/news/2012-10-24/u-s-colleges-raise-tuition-4-8-outpacing-inflation.html

http://www.huffingtonpost.com/2013/01/04/college-textbook-prices-increase_n_2409153.html

http://en.wikipedia.org/wiki/File:InflationTuitionMedicalGeneral1978to2008.png

http://www.intellectualtakeout.org/library/chart-graph/college-tuition-fees-vs-overall-inflation

[alcibiades_mystery]

4. Defined contribution plans are the number 1 scam of neoliberal economics

It was all of a piece in the late 70's/early 80's - privatization, the shift from defined benefits, financialization of the economy. Of course, the genius is that they enforce buy-in to the very forces that are strangling us.

[Brickbat]

9. "The number one scam" -- totally, totally agree.

[byeya]

29. A scam of immense proportions. Since SSA operates at a 1% overhead, it makes sense to make Social

Security the main provider of retirement income.84% of Americans believe SSA benefits are not high enough and are willing
to pay more to ensure a higher income at retirement.

[HughBeaumont]

5. The Great Risk Shift.

EVERYone should read this book. 401(k)s were a huge part of the Corporation's severance of the Social Contract. Even as we speak, more and more employers are doing away with matching.

The wealthy really and truly DO NOT CARE about their workers. This is what pisses me off the most about the "useful idiots" - You rely on the wealthy to take care of you in the vain hope you're going to BE wealthy someday, and you'll end up with an economy comprised of jobs where you'll end up paying or being a free employee FOR the Corporations.

[KoKo]

10. +!

[antigop]

15. Thanks, Hugh...I'll take a look at it. nt

[NoMoreWarNow]

22. seems like we have to MAKE them care about us

but the game is rigged in their favor right now, for sure

[HiPointDem]

7. it's both, and everything else. it's the entire neoliberal package, including free trade agreements

privatization, cheap labor policies, the whole 9 yards.

[hughee99]

11. No thanks.

401k's have been around since the late 1970's, but a lot of people didn't really start getting into them until the late 80's or early 90's. Normally, a person might start to contribute to one in their 20's and expect to start seeing money from the program 45 years later, but because of the relative newness of this, many current retirees spent less than half that time putting into the program and then were hit with the double whammy of retiring in a down economy. I think it's unfair to judge the system based on just the current snapshot and given that a large number of people joined this halfway through their working careers.

All the discussion about how SS is the problem and we need to cut (or means test) SS reminds people that this is NOT guaranteed money either. The government can simply decide that you don't need the money enough, or they're not going to pay you as much when you retire.

I don't have an issue with expanding SS, but I think they should allow the 401k to continue.

[badtoworse]

14. The government taxes your SS if you have too much other income

In that sense, it's not guaranteed either.

[One_Life_To_Give]

12. Defined benefit just hides a mandatory contribution

It's part of ones paycheck whether you see it or not. The key question is does everyone have to contribute and the details of who/what will handle the investment of funds so the are available at the appropriate time. What people will see though is if you havn't been maxing out your 401k annual contribution, then your getting a Net Pay decrease to make defined benefit work.

[dkf]

17. Are they talking about confiscating individual 401ks to fund social security? I sure hope not.

Or is this basically about raising social security contributions ie the payroll tax?

Why would that come at the expense of 401ks?

[FarCenter]

18. You can get rid of defined contribution plans, but that won't bring back defined benefits plans

Defined benefits plans are too risky for the employers. They'd be insane to bring them back.

[raouldukelives]

19. Wall St needs that money to keep the gravy train rolling.

Since so many people are in it, it must be a wonderful thing. I know a liberal wouldn't be in it unless they believed in it and thought everyone should be a part of it. The bigger the better!

[xchrom]

20. du rec. nt

[The2ndWheel]

21. "It was assumed"

That might be part of the problem. We have these huge plans with an idea of permanency behind them, but reality outside of the human mind shifts here, there, and all around.

[deminks]

25. As I told our financial "planner" recently, I want my GD money to put under my mattress,

not for Wall Street to play with (and lose most of periodically), and not for the banks who pay no interest anymore. I want it under my GD mattress. At least I could keep it there. He laughed at me.

[libodem]

27. Didn't the bottom fall out of those

Along with our home equity when Bush, sucked the economy dry? They aren't fail safe, that's for sure.

[Politicub]

28. The 401k is the biggest boondoggle ever

It was a bad idea then and it's certainly a horrible idea to continue it.

So many people I know had had to tap their 401k to pay for basic living expenses.

[mainer]

34. One option is a private defined-benefit plan

The downside? You have to be consistent at putting money into it.

The upside? It's a pension that you own, and you can decide how risky you want it to be.

I have mine invested in only the safest possible vehicles. Not much in the way of big gains, but at least I know it will be there when I retire.

http://www.nytimes.com/2012/12/01/your-money/defined-benefit-plans-allow-fast-retirement-saving-but-with-risks.html?pagewanted=all