At Halloween, there are spooks and scares aplenty, but here at NPPC, we think the mistruths and misinformation surrounding defined-benefit pensions are the most frightening tricks of all. Dressed in slick costumes, 401(k)s and other defined-contribution retirement plans deceive you into thinking they’re secure retirement options. The truth is, they are more dangerous than any Halloween ghoul. 

The implementation of 401(k)s has been a disaster for workers’ retirement security. In 1978, Congress passed The Revenue Act as a tax-free way for employees to defer compensation from bonuses or stock options. As a result, companies saw a cheaper, easier-to-fund alternative to pensions–and gave the false impression to workers that they could have higher-performing retirement accounts with more control. However, defined-contribution plans were never intended to be the primary retirement savings account for workers.

Approximately 60 million American workers currently participate in a 401(k) with fearsome results for their retirement outlook. Many financial professionals recommend saving 10-15% of pre-taxed income for retirement, and it is a common belief that the average worker will need upwards of $1 million to leave the workforce comfortably. Yet, according to Fidelity Investments, the median, which represents the center balance between the highest and lowest amounts, in Americans’ 401(k) accounts is astoundingly low, at $24,500. Even Ted Benna, the creator of the 401(k), admits that for most workers, defined-contribution accounts are not adequate savings vehicles. Former American Society of Pension Actuaries head Gerald Facciani even said, “The great lie is that the 401(k) was capable of replacing the old system of pensions. It was oversold.”

In addition to leaving workers with the spine-tingling feeling of an unsure financial future, the move away from offering defined-benefit pensions has had terrifying effects on the recruitment and retention of essential public workers. We’ve covered the disastrous staffing shortages and subsequent training and recruitment costs in Alaska after lawmakers closed its pension system. We’ve talked about the chilling lack of public safety officers in places like Branford, Connecticut, and Palm Beach, Florida, when those municipalities stopped offering their police officers risk-pooled, defined-benefit retirement plans.

Like any good horror story, we will continue to tell the harrowing tale of what will happen to American workers without access to the modest, guaranteed, lifetime benefit of a pension plan. More than just something that goes bump in the night, the spooky reality of retirement insecurity is indeed a very scary tale.