In an article published by the Wall Street Journal this week, the creators of the 401(k) reflected on the consequences of the product they promoted. The takeaway: many of the early advocates of 401(k)s now regret the “revolution” they helped to start. As you know if you are a regular reader of this blog, 401(k)s were never designed to be the primary retirement savings vehicle for working families. They were supposed to be a supplement to retirement savings through Social Security and a defined benefit pension. Gerald Facciani, a former head of the American Society of Pension Actuaries, lays it out: “The great lie is that the 401(k) was capable of replacing the old system of pensions.”
The Journal article makes a number of points that we’ve been making for a while. For example, private sector companies abandoned pensions as a way to improve their bottom line:
“What Mr. Whitehouse and other proponents didn’t anticipate was that the tax-deferred savings tool would largely replace pensions as big employers looked for ways to cut expenses. Just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979.”
Also, working families at all income levels are failing to save enough for retirement:
“Financial experts recommend people amass at least eight times their annual salary to retire. All income levels are falling short. For people ages 50 to 64, the bottom half of earners have a median income of $32,000 and retirement assets of $25,000, according to an analysis of federal data by the New School’s Schwartz Center for Economic Policy Analysis in New York. The middle 40% earn $97,000 and have saved $121,000, while the top 10% make $251,000 and have $450,000 socked away.”
And even early advocates of 401(k)s are dealing with the consequences of their revolution:
“Some early 401(k) supporters are learning about its shortcomings firsthand. [Herbert] Whitehouse, the former Johnson & Johnson human-resources executive, says his 401(k) took a hit after 2008. He could retire if he had to, but if he wants to maintain his standard of living for several more decades, he must continue to work, he says.
The 65-year-old currently lives in Orlando and is in-house counsel for ABC Fine Wine & Spirits, a Florida chain with about 140 stores. He plans to work into his mid-70s.
It would be appealing, he says, to have an old-fashioned pension. “A pension is pretty valuable,” he says.”
We at NPPC fight to protect pensions because we know what happens when pensions are abandoned. Join us in our fight in 2017!