Indeed, although the 401(k) was originally designed by Congress to enhance personal savings and raise the nation's savings rate, it has turned into an easy excuse for companies to dump their traditional pension plans.
In 1975, for example, 39% of the nation's private-sector workers were covered by a traditional defined-benefit plan; by 1992, that percentage had declined to just 26% and was heading south fast, according to Labor Department statistics.
While corporate executives talk up the advantages of 401(k) accounts for their workers, many still maintain traditional pension plans for themselves and their highest-paid employees. A 1995 survey conducted for the Chicago-based Profit Sharing / 401(k) Council of America found that of those workers earning less than $20,000 a year, only 28.1% had traditional pensions, whereas 22.4% had access to 401(k)s or profit-sharing. Among workers earning $50,000 a year or more, however, 66.1% had traditional pensions and 65.6% had 401(k)s or profit-sharing plans.
The numbers are so disturbing that early on the Clinton administration briefly considered tackling the fundamental problems stemming from the shift from traditional pensions to 401(k)s, Dudley says.
"The administration started with a philosophy that defined-benefit plans were inherently better than defined-contribution plans," she observed. "So the administration established a working group on the shift from [pension plans to 401(k) accounts], and there was talk that once they finished with health care, Reich would do something on 401(k)s."
However, once health-care reform fell apart and the Republicans took control of Congress, dramatic domestic initiatives were no longer welcome in the Clinton White House; modest, campaign-friendly proposals were in vogue. Dudley says the early trial balloons from the Labor Department about revolutionary change on defined-benefit versus defined-contribution plans soon disappeared.
So instead of fundamental reform, Clinton and Congress are now merely looking for ways to protect and defend 401(k)s.
Washington is also about to let companies restructure their plans further toward their highest-paid executives. Legislation included in the minimum wage bill that passed earlier this month will free companies from so-called federal discrimination rules that now restrict highly compensated workers from contributing much more than lower-paid workers into their 401(k)s, according to David Wray, president of the Profit Sharing / 401(k) Council of America. The government would waive the limits on contributions by well-paid employees if the company agrees to provide matching contributions for all employees equal to roughly 4% or more of their wages, or to set up accounts for nonparticipating employees and make company contributions of at least 3% of their wages, even the worker still doesn't pay into it.
Wray argues that the change is a positive move for American workers, one that will actually increase corporate and individual participation in 401(k)s.
Still, it also seems certain to further widen the gaping disparity in retirement benefits between top management and labor.
So look behind Reich's crowd-pleasing announcement and you might see Washington turning a blind eye while the playing field gets tilted--again.