Has the 401(k) Been a Failure?

Report: The Failure of the 401(k) (2010). Written by Robert Hiltonsmith of Demos, a non-partisan public policy research and advocacy organization, the research report examines the retirement security – or more accurately, the lack of security – provided to American families by 401(k) plans. The report concludes that retirement security has deteriorated in the past generation and that workers retiring in the next two decades can expect to receive only 65 percent during retirement of what they made during their working years; far below the amount required for Americans to enjoy a secure and dignified retirement.

The report opines that much of the decline in retirement security is due to the shift in the private sector from providing retirement benefits through traditional pensions, which 401(k) Failureguaranteed a lifetime stream of income at retirement, to less secure individual retirement accounts, whose benefits vary with the size of employer and employee contributions, and the volatile swings of the stock market. Mr. Hiltonsmith drives home four primary points:

  • Employer-based retirement coverage is woefully inadequate
  • The most common type of retirement plan – the 401(k) – is fatally flawed
  • The high fees that 401(k)-type plans charge are one of the worst aspects of the plans
  • The 401(k) needs to be replaced, not simply reformed

While I agree with many of the points (e.g. high fees in 401(k) plans are problematic) made by Mr. Hiltonsmith, I have arrived at a different conclusion. Namely that the single greatest problem facing most Americans with regards to retirement security is not 401(k) plans but our hyper-consumer mentality and financial illiteracy…and the refusal of many to educate themselves when a plethora of sources are available.

However, even though I have some disagreements with the conclusions drawn by Mr. Hiltonsmith, I believe it is a well written and well researched report that should be read by SavvyReaders. One key to becoming more financially literate is to consume personal finance information from a wide variety of sources.

The 29 page report is available for download at the Demos site.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. 401(k) has been wonderful for Wall Street as feeding investment industry a source of capital not likely to show up in the form of individual investors.
    The new regulations for fiduciary responsible plans under ERISA like the Section 3(38) rules make a marked improvement.

    • Agreed that Section 3(38) of ERISA marks an improvement in that a plan’s sponsor can delegate the significant responsibility (and liability) of selecting, monitoring and replacing of investments to a fiduciary; and I believe it is reasonable to assume that the fiduciary (e.g. a bank, an insurance company, or a registered investment adviser) will likely make more sound investment decisions than the plan’s sponsor. However, Section 3(38) does not directly address fees, which I believe are the biggest problem for most investors. 401(k)s can be good for individual investors as long as they educate themselves with regards to the composition of their portfolio and the attendant fees. Thank for stopping by, Scott.

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