The 401(k)- a failure?

[Dash man]

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Originally Posted by Gumby A misleading title for this article. 26 U.S.C. Sec. 401k is just a section of the tax code providing that certain earned income can be saved tax deferred. It is neither a success nor a failure; it is just the law. The failure is the wholesale abandonment of defined benefit pensions and shift to defined contribution plans for retirement security, with the concomitant shifting of risk to those who in many cases are ill suited to bear it. The failure is an economy that has given almost every bit of productivity gains over the past 30 years to capital rather than labor, such that employees who are not highly skilled have not seen sufficient income gains to allow them to save for retirement, on a tax-deferred basis or otherwise. And, yes, the failure is a society that values current consumption over virtually everything else.

Sounds like you don't think the individual bears any of the responsibility.

[Big_Hitter]

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Originally Posted by MaddMaxx pensions were never sustainable with people living longer

sure they are - you just have to fund them properly

[MaddMaxx]

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Originally Posted by Big_Hitter sure they are - you just have to fund them properly

and exactly how are companies supposed to do that during recessions when they have to choose between funding a pension or keeping the company profitable? or is that not the workers concern?

The biggest benefit of the 401k is that the company matches my contribution bi-weekly, I don't have to worry about the condition of the company 20 or 30 years later when I am ready to live off of those funds, The money is already in my account. If the company struggles while I am working and they need to cut back or off the 401k matching, I can either choose to stay with that company until conditions are better, or go somewhere else where I can then continue to get 401k matching...the important thing is that I am in control of my retirement funding.

[Big_Hitter]

Quote:

Originally Posted by MaddMaxx and exactly how are companies supposed to do that during recessions when they have to choose between funding a pension or keeping the company profitable? or is that not the workers concern?

if the company can't afford to make the contribution there are these things called minimum funding waivers


there is no argument that DB plans provide the biggest bang for the buck in the retirement arena, from an employer cost perspective - they are way more efficient than DC plans

[Big_Hitter]

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Originally Posted by MaddMaxx I don't have to worry about the condition of the company 20 or 30 years later when I am ready to live off of those funds,

there is this thing called PBGC

[unno2002]

If the money taken under the Social Security (both employee & employer “contributions”) went into the 401k, it would make a significant difference. I’ve ran spreadsheets for myself and the wife, and we would have been MUCH better off with the money in a 401k, than our promised SS benefits…

[Big_Hitter]

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Originally Posted by unno2002 If the money taken under the Social Security (both employee & employer “contributions”) went into the 401k, it would make a significant difference. I’ve ran spreadsheets for myself and the wife, and we would have been MUCH better off with the money in a 401k, than our promised SS benefits…

no doubt that we aren't getting the return on contributions that our parents did, that's why it's called a "social" insurance program

[MaddMaxx]

Quote:

Originally Posted by Big_Hitter if the company can't afford to make the contribution there are these things called minimum funding waivers there is no argument that DB plans provide the biggest bang for the buck in the retirement arena, from an employer cost perspective - they are way more efficient than DC plans

again, your putting your hopes on someone else providing money to you at some future decade for retirement...a process that is failing all over this country.

While DB plans do provide more bang for the buck for the retiree, I cant see how you say they are more efficient to a company then DC plans, I don't hear of 401k plans failing and even if they did, you have the choice to leave that company and resume saving in a 401k somewhere else. Whats not to like about that?

If PBGC is so great, why is it that pensioners are having to settle for smaller pensions then were promised?

[Midpack]

Quote:

Originally Posted by unno2002 If the money taken under the Social Security (both employee & employer “contributions”) went into the 401k, it would make a significant difference. I’ve ran spreadsheets for myself and the wife, and we would have been MUCH better off with the money in a 401k, than our promised SS benefits…

Except comparing a paygo system (Soc Sec) with the associated demographics to an individual investment is irrelevant. And previous generations were (much) better off with Soc Sec, they spent your contributions as they came in. If you want to switch now, make sure you review the math first.

[Big_Hitter]

properly funded db plans aren't failing, they are thriving and a sign of a flourishing society - I think both DB and DC (or a hybrid) are necessary to ensure adequate retirement security for the US as a whole


if you can't do a search yourself i'll see what I can dig up for you on the efficiency issue; it's factual and I don't argue about facts - there is plenty of DB propaganda out there


what pensioners? the PBGC does have a limit guarantee but it's pretty high at SSNRA

[MaddMaxx]

Quote:

Originally Posted by Big_Hitter properly funded db plans aren't failing, they are thriving and a sign of a flourishing society if you can't do a search yourself i'll see what I can dig up for you on the efficiency issue; it's factual and I don't argue about facts what pensioners? the PBGC does have a limit guarantee but it's pretty high at SSNRA

YRWC - Yellow Trucking had to negotiate with the Union to try and keep the doors open, Union workers had to accept less of a pension. How about Detroit city workers? I believe they also had to accept a pension cut.

KPERS (Kansas Pension) has just above 70% funding, is expected to be in real trouble in the coming years. Chicago city employees? Same issue.

[Big_Hitter]

PBGC doesn't guarantee public pension plans

[purplesky]

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Originally Posted by Dash man Sounds like you don't think the individual bears any of the responsibility.

Thats the point. Shifting the complete responsibility of retirement saving on middle and low income workers during a 30 year flat wage economy has created a retirement disaster.

The 401k was created for high income executives to defer paying taxes.

The movers and shakers knew exactly what they were doing as they eliminated pensions and shifted retirement saving responsibility on their underpaid employees.

So now we the taxpayer will subsidize many of corporate Americas employees while they are receiving a paycheck and also all the way to their grave.

And just think of all that capitol that is parked offshore.

[bUU]

Quote:

Originally Posted by purplesky Thats the point. Shifting the complete responsibility of retirement saving on middle and low income workers during a 30 year flat wage economy has created a retirement disaster.

[Emphasis added.]

Precisely. The switch from one extreme (which really wasn't the way things were, given that many people were not covered by DB plans) to the other extreme (which really isn't the way things are ... yet, given that some people can still live on Social Security in some places) is what's most concerning. What's best would be something that shares the responsibility - a system within which everyone can reasonably be expected to have the opportunity to gain and hold a full time job for which they can earn enough income and/or DB benefits such that they can pay their own way and secure their own future. Somewhere between the elimination (and original scarcity) of pensions, and the comparison between wage rates and corresponding costs of living, the math was ignored. The way things are now, and the way things are going, things simply don't add up. The data I mentioned earlier in the thread shows that when people earn enough they do save for the future.

[Dash man]

Quote:

Originally Posted by purplesky Thats the point. Shifting the complete responsibility of retirement saving on middle and low income workers during a 30 year flat wage economy has created a retirement disaster. The 401k was created for high income executives to defer paying taxes. The movers and shakers knew exactly what they were doing as they eliminated pensions and shifted retirement saving responsibility on their underpaid employees. So now we the taxpayer will subsidize many of corporate Americas employees while they are receiving a paycheck and also all the way to their grave. And just think of all that capitol that is parked offshore.

Pensions were never a benefit to more than about 40% of employees, so there is a big misconception that there was a major shift as you say. Those that did have pensions often risked losing them if they didn't complete 30 years of service, but changes in laws have changed that. In the past workers often did work until they dropped or their families had to care for them. The 401k changed things by allowing workers to save in tax deferred accounts for their retirements, but as they say, you can lead a horse to water but you can't make them drink. The problem is people fail to save, nothing more. They choose to spend on immediate gratification rather than for their future. Employers pay market wages to employees and employees are free to look elsewhere for work or to upgrade their skills (as I did) to earn more. Those who wait for others to send money their way will likely be waiting a long time.
As far as the "Capitol" you speak of, it's still in Washington DC. If you mean the cash companies hold abroad, a change in the tax laws would likely be an incentive to bring that into the U.S.

[mpeirce]

My primary objection to DB pensions is that it basically traps you with a specific company (or sometimes an industry depending on how portable the plan is).

I can't imagine working for the same company all my life. That would have been awful.

[ziggy29]

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Originally Posted by purplesky Thats the point. Shifting the complete responsibility of retirement saving on middle and low income workers during a 30 year flat wage economy has created a retirement disaster. The 401k was created for high income executives to defer paying taxes.

This is largely true, and I'd add that the 401K was sold as an ADDITION to the defined benefit pension, not a *replacement* for it. In that sense it has truly been a trojan horse.

It's easy for people with higher incomes and "simple tastes" to simply say it's the workers' own fault for not maxing out their 401Ks, starting at an early age; it is true that those who did that in their 20s and 30s and just let it ride in a stock index fund will likely be just fine. But how hard is it to do that on a moderate income, dealing with mortgages, flat wages, kids, college funds , student loan debt...

I was lucky. The 401K worked well for me, even after my first Megacorp froze my pension. With no student loan debt and solid savings coming out of college (one perk for living with your parents and going to a state commuter school with a part-time job on the side), I was able to be pretty aggressive with it, saving close to 10% in my early 20s and getting that up to the maximum they would allow at the time (12%) in my late 20s and early 30s. After that I was putting in maybe 13-15% a year until the day I was whacked. Next thing I knew, I was a millionaire on paper, the "millionaire next door", thanks to my 401K investments since the late 1980s.

So it can work... but it requires a discipline few 20- and 30-somethings have.... and a fair bit of luck. I also had luck that both Megacorps had pretty generous matches. (M1 gave 60 cents on the dollar for the first 8%; M2 matched dollar for dollar up to $5K per year, and who doesn't like free money?) This is what helped me rest easy when I was laid off. I don't even need to touch it for income, but if push comes to shove, I can 72(t) some or all of it.

That all said, I won't take the "if I can do it, so can everyone else" road. I had a lot of luck and a perfect storm of variables where the winds blew in my favor.

[Midpack]

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Originally Posted by bUU The data I mentioned earlier in the thread shows that when people earn enough they do save for the future.

I'd really like to see that study. I tried to find anything like it and couldn't, so if you could provide more info I'll search for it myself.

While there's undoubtedly some correlation between income level and savings, it's not as simple as that IME.

[ziggy29]

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Originally Posted by mpeirce My primary objection to DB pensions is that it basically traps you with a specific company (or sometimes an industry depending on how portable the plan is). I can't imagine working for the same company all my life. That would have been awful.

That is a concern, especially these days. It's not 1960 any more, where one could get pay raises that kept up with inflation, a good pension and decent health insurance at work and in retirement. And workplaces are, in many ways, more toxic on average than they were 50-60 years ago.

I like the *idea* of a portable DB pension in principle, but I waver "in practice". I just can't think of a way to implement it that is (a) workable and (b) ideologically/politically palatable with this country.

[48Fire]

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Originally Posted by marko At least articles like this take the heat off of those of us who've gained nicely from their 401k. Instead of being vilified for not paying taxes on my gains; now I can play the part of a poor victim of a failed program!!

Haha yeah we are all victims

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