It was all about money when it came to 401(k)s, as I have written in here repeatedly over the years. They were promoted as some kind of "get rich" schemes, but in fact the only ones getting money were the companies instituting these fake "pension" plans--these are not real pensions--because they shifted the cost and risk from themselves to their employees.
It soon became clear that 401(k)s were not going to supplement pensions, but replace them. (See "Scrambled Nest Eggs.") Congress did its part, raising premiums for defined-benefit plans (which had to contribute to the PBGC) and thus making 401(k)s (which did not) more attractive. As time went on, more and more companies froze their defined-benefit plans, creating a two-tiered system whereby longtime workers got to keep their traditional pensions while new employees were routed into 401(k) plans. In addition to their advantages for employers, 401(k)s favored wealthier workers in higher tax brackets, who stood to benefit more from being able to set aside a portion of their salaries tax free.
No one seemed much bothered by the move of a vast portion of Americans' retirement funds into risky securities-based funds. The Fed supported the 401(k) boom, just as it later would the housing boom, by championing deregulation and keeping interest rates low. Who would choose to invest their retirement funds in safe but low-interest bonds or T-bills when they could make 10, 15, or 20 percent in the market? In 1983, according to a survey conducted by two securities-industry groups, just 15.9 percent of American households owned equities; by 2005, the figure was 56.9 percent. More than half of households that owned stocks had first gotten into them through a 401(k) or similar account.
The plans are total trash.
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