In a Wall Street Journal article entitled "How Well Do You Know...Your 401(k) Plan?" Leslie Scism and Jennifer Levitz quiz readers on the history and latest developments of 401(k) plans.
In the 1970s, some corporations asked the government if they could put aside retirement money, tax-free, for their executives. Officials gave permission, provided the companies offered the opportunity to all workers, never expecting the plans to take off....The 401(k) plan slipped in "under the radar," says Teresa Ghilarducci, and economist at the New School for Social Research in New York. The idea was that this new plan--in which workers set aside pretax earnings in investment accounts--would supplement the rank-and-file's old fashioned pension plan, the type that sends out a monthly check.But as companies sought to hold down costs, more and more froze the old-fashioned plan and went solely with a 401(k). "What [the government] didn't anticipate was the erosion of well-defined benefit plans," she says. "They never conceived that the 401(k) would be the only retirement plan that companies provided. That's what we economists call 'unintended consequences' of a law."
The 401(k) is replacing pension plans. And it's easy to see why. Pension plans are a real albatross around the neck of companies. Pension plans support people who don't work for these employers anymore.
The employer-sponsored pension plan was a market driven phenomenon to begin with. It appears that railroads were some of the first to provide the pension in America, to attract good workers and keep them. It was the free market at work. The free market inspired companies to add pensions to wages and motivate workers to start working and stay working for them.
So what did that mean? Mr. Railroad Worker would put up with crap in what we today might call a dead-end job. If he put up with crap he would have a pension at the end, and he'd have money after he was too old to work. His wife and kids would be taken care of. "Career path" wasn't part of his vocabulary.
Article comments
1 - Joanne Huspek
So, what you are saying is that we should have invested in gold bars?
My 401K plan is on such shakey ground right now, I'm not sure there will be anything left when I retire. I've been losing money, even though I'm paying in. Might as well have put it into a bank account with 1% interest.
Or put the money in my safe.
2 - Joanne Huspek
So, what you are saying is that we should have invested in gold bars?
My 401K plan is on such shakey ground right now, I'm not sure there will be anything left when I retire. I've been losing money, even though I'm paying in. Might as well have put it into a bank account with 1% interest.
Or put the money in my safe.