LAS VEGAS—Are 401(k) plans a failed experiment? It's probably a fair question, generally speaking, but an odd one at a trade show dedicated solely to the retirement product.
But that's a question a group of panelists tackled here Sunday afternoon, answering with a resounding no, albeit with more than a few caveats.
The retirement staple has taken a lot of heat over the last few years, ever since the market crashed back in 2007, followed by a recovery that's still stumbling along.
The benefits of the 401(k) remain the secrets to its success: payroll deduction, the (potential) employer match, portability and, of course, the tax savings. They're also the only assets under professional management that most Americans have. And with the spread of automatic features, such as enrollment and escalation, participation continues to grow.
But, again, times have been lean since the market stumbles over he last five years have wiped out more than a few retirements. For starters, these plans were meant to be supplemental, not primary retirement savings vehicles. And despite the popularity of loan features, leakage remains a persistent problem. And, finally, there's a frightening lack of protection—with the participants themselves assuming the risks—along with no guarantee of a post-retirement lifetime income.
As panelist Karen Friedman, executive vice president and policy director of the Pension Rights Center, pointed out, 401(k)s are primarily "retirement vehicles for higher-income individuals" that only work when employees "keep contributing and don't touch it."
So what's the fix? While that might be the harder question to answer, most of the panel agreed wider distribution of auto enrollment features are necessary, along with full or partial annuitization of plans to guarantee participants don't outlive what they've worked so hard to save.