Retire Rich

May 30, 2009

401(k)s Will Supplant Pensions in Our Lifetimes

How far the 401(k) has come since employers first introduced the savings plan in 1981. And how far it has yet to go. 401(k)s, I predict, will become universal in our lifetimes, supplanting all forms of pension plans.

The first time I heard about 401(k)s, when I entered the workforce in 1982, was from a fellow classmate from the University of Pennsylvania, who was familiar with then-esoteric 401(k) section of the IRS code (then being touted merely as a tax benefit), since she worked as an accountant for Coopers & Lybrand.

Recently, 27 years later, I was discussing pensions and the future of 401(k)s with another fellow classmate from another of my college alma maters, Skidmore College. An attorney with the Federal Emergency Management Agency, she offered the point of view of a lifelong government employee, who chose the public sector over the far more lucrative private sector partially because of the lifelong pension benefits the government provides, starting at a relatively young age, at that.

Noting that federal, state and local governments are offering pension/457 plan hybrids as a way of weaning government workers off of pensions, and that she herself has a self-directed Thrift Savings Plan, I maintained the goal of the government is to eventually make guaranteed pensions extinct. No way, she said, taking umbrage that it was even remotely possible for the government to so completely change course.

Shifting the responsibility for one's retirement onto workers, be they private sector, non-profit, union or government employees, is, for better or worse, the future. I would even go so far to say that the current trend of smaller employers ceasing healthcare coverage, blaming it on the recession, is also the wave of the future. Health savings accounts will someday take their place.

As 401(k)s march toward becoming universal, the mutual fund industry is in a fighting position to lobby for many of the improvements that were discussed at the ICI's recent General Membership Meeting. As more workers are left holding the bag, we have a responsibility for the outcome of Americans' retirement outlook to do so. Automatic enrollment and investment increases, target-date funds and embedded advice from third-parties are excellent first steps.

(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

http://www.mmexecutive.com http://www.sourcemedia.com/

Recent Posts

Tear a Page From the AARP/Today Show Playbook

America has yet to witness the tremendous societal transformation retiring Boomers will have, as the oldest is a mere 64 and the youngest, 46. But we are beginning to see signs of the tsunami-sized impact this army of 77 million will have on the workplace, the economy, healthcare and even the arts and entertainment. AARP has just formed a timely, unbelievably beneficial partnership with NBC's "Today Show." Beginning tomorrow, March 9, the No. 1 morning news program that reaches 5.9 million viewers a day, is bringing back former Emmy Award-winning host Jane Pauley to produce and report a monthly segment called, "Your Life Calling."

It's About Time for an About-Face for Funds

It's about time mutual fund product developers thought out of the Morningstar investment-style box to give portfolio managers the ability to do an about-face.

One of the most critical discussions to come out of the financial crisis has been the questioning of the rigid investment mandates of mutual funds and the soundness of 60-year-old modern portfolio theory-since correlations between investment classes are obviously becoming more intricately woven in the global economy of the 21st century and the markets are prone to increasingly higher volatility and risk.

Extreme Makeover: 401(k) Edition

Investors are about to test drive 401(k) plans with a 21st Century whole new look and feel. The Department of Labor is promising streamlined rules for 401(k) advice that plan sponsors may actually use. The government is looking into the possibility of offering annuities or other lifetime income options in defined contribution plans.

C- Grade is Nothing To Crow About for 401(k)s

The mutual fund industry should proudly celebrate Americans' 73% approval rating for 401(k)s, according to an Investment Company Institute report, "Enduring Confidence in the 401(k) System." In our book, a 73% rating equals a C- grade that, in fact, should be a wake-up call for the industry to do a far better job of equipping Americans to adequately prepare for a decent and healthy life in their old age.

Index of Posts

0 Comments

Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Money Management Executive, please use the form below to login. When completed you will immeditely be directed to post a comment.

Not Registered?

You must be registered to post a comment. Click here to register.