Shift To 401(K) Retirement Plans A "Disaster"

A report released Thursday from the U.S. Government Accountability Office (GAO) shows the shift away from traditional pensions to 401(k)-like plans contributes to inequality. Bloomberg reported Friday, "The U.S. retirement landscape is starting to look like a Charles Dickens novel.” These "defined contribution (DC)" plans, the report notes, "have become the dominant form of retirement plan for U.S. workers," but 60 percent of all U.S. households in 2013 had no retirement savings in one.

Further showing this inequality, the GAO reports that while 81 percent of working, high-income households had savings in a DC plan, only about 25 percent of working, low-income households had any savings in one. Also from 2007 to 2013, the average balance in such accounts held by white working households didn't significantly change, but for black working households, the average balance in plans dropped significantly—from $31,100 in 2007 to $16,400 in 2013.

Further, according to GAO's projections, households in the lowest earning group accumulated DC savings that generated lifetime income in retirement, as measured by an annuity equivalent, of about $560 per month on average (in 2015 dollars). Yet, 35 percent of this group had no DC savings at retirement.

In contrast, households in the highest earning group saved enough to receive about 11 times more per month in retirement and only 8 percent had no DC savings.

A 2013 paper from the Economic Policy Institute showed how this shift away from traditional pensions to 401(k) retirement plans has been a "disaster," fueling inequality and creating more insecure retirements.

Economist Dean Baker also noted in December that "Your retirement prospects are bleaker than ever," attributing it to "the disappearance of traditional defined benefit pensions and the failure of 401(k)-type plans to fill the gap.” He added, "The vast majority of Americans who expect to retire in the next decade can count on little income other than their Social Security. This is true not only for low-income workers, who have struggled most of their lives, but also for millions of middle-income workers," Baker wrote. "Although Social Security is a tremendously important program, and provides a solid base that retirees can depend upon, its $16,000 average annual benefit doesn't go very far. Many if not most can expect to see sharp reductions in living standards.” Hello Tiny Tim….


Willie W's picture
Willie W 6 years 45 weeks ago

Social Security is by far, the absolute best defined benefit retirement program going. I can understand why it's constantly under attack. It's because outsiders can't make any money off of it. It's a true gem. Unfortunately, up for grabs. Anyone that promises to save it is just blowing smoke. The operative word here is STRENGTHEN........Not save! Oh but we can't afford to do it. It's looking more and more like we can't afford not to. It should be our premier retirement plan.

bpentony's picture
bpentony 6 years 45 weeks ago

Absolutely agree! And the GOP has been foaming at the mouth to get SS privatized so their buddies on Wall Street will have a bonanza. This would be a huge disaster for the average person... We MUST NOT allow the greedy powers to be to get away with privatization. The guarantee of SS will be gone.

As a matter of fact, we hear now that Trump is open to privatization. No wonder Paul Ryan wanted to meet with Trump. It appears to me that the GOP thinks they can control Trump if elected (God help us all) and tell him what he should and should not do.

dtodd560's picture
dtodd560 6 years 45 weeks ago

Completely agree Willie W, there is really only one solution to the retirement crisis, and that is to strengthen and expand Social Security, and that will mean increasing the social security payroll tax. Pensions are not going to return to the American private sector, and they will soon be phased out of the public sector, as more and more municipalities and states get into financial difficulties trying to fund these pensions. Public pensions will be switched over to 401K's in the near future, and that will mean even more reliance on Social Security to fund retirment for everyone.

cccccttttt 6 years 45 weeks ago

Retirement issues are part of a larger situation.

With the rise of robots, the productivity per workers will vary so much

that distributing wealth by wages is going to need some rethinking.

One worker overseeing 100 robots versus a single worker will have a huge

productivity difference per day.

Yet should the wages of the one be 100 times the other?

Switzerland is considering a plan that looks like social security but it starts at


Canada is looking at another version.

Clearly our technology will require new ways to divy up the pie

without jealousy and still maintining motivation.


pokerzion's picture
pokerzion 6 years 45 weeks ago

It get's even worse my friends. These super computers that the absolutely wealthiest (.001%) people have access to on wall street that can trade fractions of a second before the rest of the floor has access to them, sucks out over 80% of the lowest risk, highest yielding trades before the rest of us smucks (and your broker) have access to them. That means we get left with all of the sloppy seconds (about 20% left of these "good" investments), to fight over. We're getting straight fleeced in so many ways that average Americans just have no clue about. It's absurd and digusting.

This whole thing was very systematic in moving companies out of pensions, into the private market, so they could fleece us suckers. Nearly no one knows about it, and no one talks about it. It's one big scam.

leigh23's picture
leigh23 6 years 45 weeks ago

We allowed privatization of pensions via "401Ks" which have enriched those at the top. Social security is our life raft and must be protected constitutionally. .....

pbarnrob's picture
pbarnrob 6 years 45 weeks ago

I was lucky; as soon as I passed the 90-day probation, I joined the retirement plan, and then every annual raise, half of it went into a Salary Reduction Agreement/Supplemental Retirement Account over 19 years working for CalTech at JPL (in three jobs, with broken time; 10-year vesting clock not satisfied). This gets me roughly two-thirds of Social Security (which after the 2004 layoff, I applied for early, at 62 in 2007, and kept the old house.)

SS is an absolute lifesaver, with Mama still working to keep groceries coming.

Removing the SS contributions cap will strengthen it for centuries to come. Once the numbers are run, zero'th year will be visible (and viable) as a start date.

As automation runs most production, we MUST find ways to guarantee a Basic Income, and Medicare For All, including Dental.

Paying for it all will be a knock-down-drag-out fight, but it MUST be done. Start NOW.

Bernie's one-point (0.01%) tax on those high-speed trades will barely be noticed, and take care of education for all.

larm007's picture
larm007 6 years 45 weeks ago

I was against it when it happened. 401k"s went right into Wall St.and then later came the crash. The greed in this country is outrageous and immoral. And I'm not talking about most of us.

Hephaestus's picture
Hephaestus 6 years 45 weeks ago

To quote - "greed is good!"

Wall street ethos and ethic

Sadly, emblematic of all that is bad about humanity

Kpax's picture
Kpax 6 years 45 weeks ago

I'm with you larm007!

When 401k's started my thoughts were, "This is just to help Wall Street inflate their numbers! I was absolutely on it!" Pensions are now a joke. People gave their all to corporations and expected some retirement compensation for their loyalty and what do that get? The shaft.

Working class should never have loyalty to any company. They will lay you off, streamline, downsize, all to make the shareholders happy with more money. It's absurd.

Face it folks, get ready for a reality check, because when you are old and maybe just maybe social security and Medicare can help you squeak by some sort of living? If they even exist by the time you retire? The monthly payments from SS, (which is your hard earned dollars that the government has been accumulating for all of your working life directly from your paychecks and using for God knows what), and the lame reimbursement BS from Medicare are a stipend. You will struggle if that's what you are depending on but what options do you have?

It sucks! Americas greed is a great problem that we should all try to correct. You can start by voting people into office that give a damn about you! Don't settle for the lesser of evils. Protest, call your congressman, write letters, voice your opinions! You matter! Make a difference even if it pisses people off. What have you got to lose?

bobbler's picture
bobbler 6 years 45 weeks ago

I can confirm, the 401k/annuity things that replaced traditional pensions, screw workers. AT&T did away with traditional pensions in 1984. And I missed it by a month, and now I'm missing at least $1000 a month retirement income (I see coworkers with 2–3 years more seniority than I have getting $2300 on the pension, while mine is $1150). AT&T is profitable enough to have continued the pension program. I can confirm that the workers are losing money, so this money must be going to the CEO and stockholders instead, apparently part of the reason they make hundreds of times the money of regular workers.

baruch77's picture
baruch77 6 years 45 weeks ago

Remember Deep-Throat's advice to the Watergate reporters - "Follow the money". Who stands to benefit from the shift from Social Security to 401K's? Corporations, because they will no longer be obligated to match the 7.2% employee contribution. Executives, because they contribute a tiny % of their income to social security, and the amount they can put into tax-deferred savings is tied to the amount their employees' contributions to 401K's. The more that employees contribute to 401K's, the more that executives can put in their QSERP's. Wall Street, because they now get to charge service fees for all that money that used to go into SS. The rich 1% who already own 80% of all stocks. SS contributions diverted to the stock market will drive up the prices. The rich will then unload while the employees can't due to 401K trading restrictions, the market will collapse leaving workers holding the bag. This alone will be the biggest transfer of wealth from the 99% to the 1% in the history of the world.

Ou812's picture
Ou812 6 years 45 weeks ago

There is one important fact about 401(k)'s you are all missing....Sustainability. I've retired on my 401(k). I used the money saved in the 401(k) to purchase an annuity. The annuity is guaranteed to produce a fixed income....forever. It does not stop with my demise as Social Security and employer pension plans do. The 401(k) program builds wealth. It's a great program unless you lack the discipline or intelligence to use it properly.

KCRuger's picture
KCRuger 6 years 45 weeks ago

For all you SS supporters: It is the pyramid (Ponzi) scheme all others are modeled after. If anyone but the Gov't did it, they would be thrown in jail. It is a house of cards that at some point, must fail. The solution is simple: replace it with a means-tested dole program. (Not funded by regressive flat-rate taxation on poor workers)

As far as 401-K's go, it depends on the employer contribution level, but 99% of them are simply cost-saving measures, as most of the commenters have pointed out.

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