When Benna first started trying to persuade employers to use a 401(k), the accounts were supposed to supplement pension income. Instead, many employers tried to save money by freezing or eliminating pensions, making the 401(k) the main retirement plan. In 2015, only 5 percent of employers offered traditional pensions to new hires, down from about half in 1998, according to the benefits consultant Willis Towers Watson. The trend shifted the risk and the burden of preparing for retirement to the worker.
As the accounts rose in popularity, they also grew more complicated, Benna said. The original 401(k) had two investment options and could be explained in less than a minute, he said: “It was simple and it was attractive.”
Today, the accounts require ordinary workers to make sometimes complicated investment decisions and to wade through layers of fees charged by financial firms and advisers.
“It morphed into something that got ugly,” Benna said. “With that added complexity came a lot of added cost.”
People tend to procrastinate.
. . .
Half of workers are left out.
. . .
Incentives don’t match those who need them the most.
. . .
Ghilarducci says policymakers should create a system that requires workers to contribute a minimum amount to a retirement account that could supplement their Social Security income. Workers would receive lifetime benefits that vary based on how long they worked and how much they’ve contributed, similar to a pension. But unlike a pension, workers would not be promised a set dollar amount, she says.
The benefits paid off every year can be based on the performance of the investments in the retirement account. Ghilarducci said her proposal has been held back by the same challenges hindering retirement savings overall. Just as individuals are less likely to save until they’re close to their golden years, lawmakers and industry groups may drag their feet on crafting a solution until the retirement crisis is full blown.
