Calls grow to overhaul 401(k) retirement plans
The financial crisis, which has caused a dramatic decline in the value of the average worker's account, has undermined confidence in the system.
Reporting from Washington — For nearly three decades, working Americans have been part of a huge experiment with their future well-being: Old-fashioned pensions that guaranteed specific retirement benefits have given way to old-age benefits that depend on personal investing in the financial markets.
But now, with those markets in crisis and the value of workers' investments plunging, a bundle of ideas for modifying the system or replacing it entirely -- ideas shunted aside when the stock market was soaring -- are about to get a careful new look.
For one thing, Democrats have campaigned on the promise of a better deal for middle-class Americans. Also, many workers are aghast at the sudden discovery that their retirement years may be a lot less golden than they expected.
Retirement savings: An article in Sunday's Section A about calls for change in the 401(k) system misspelled the Nobel Prize as the Noble Prize.
Even for people who have faithfully participated in the new retirement plans, which depend on annual savings and investment in 401(k) and similar accounts, much if not all of what they gained in the stock market over the last 10 years has been wiped out.
So far this year, the average worker's 401(k) account balance has dropped between 21% and 27%, depending on the worker's age and time with his or her employer, according to the Employee Benefit Research Institute.
That's a potentially disastrous turn of events, because the key to making the savings plans work is the hoped-for gains from long-term investing, not just the amount workers set aside.
The present system is further called into question by the fact that millions of Americans have not had such plans available to them or have not participated for other reasons, including stagnant incomes that made saving difficult or impossible.
"The current 401(k) system has not turned out to be as secure as we want it to be," said Rep. George Miller (D-Martinez), chairman of the House Education and Labor Committee. "It has not provided the returns that we want it to. And it's not provided the level of savings that we want it to. It's kind of failing on a number of fronts.
"Should there be a serious reassessment? Absolutely," he said.
Miller's committee already has held two hearings on the effects of the financial crisis on retirement savings plans. At one, a professor from New York's New School for Social Research called for creating government-backed retirement savings accounts that would offer a guaranteed, inflation-adjusted 3% return. The government would contribute to the accounts, using money gained by eliminating about $80 billion in annual tax breaks for 401(k) savings.
