The nonpartisan, nonprofit Employee Benefit Research Institute recently revealed that 40 percent of employees have less than $10,000 in their 401(k) retirement accounts. Shortly thereafter, the criticism of these programs began to pour in. Many of the critics called for the return of traditional pensions, which would shift the responsibility of retirement income from the employee to corporate America.
The EBRI data isn’t the only source of statistics that support the
notion that too many American workers are not saving enough on their
own. I’ve read articles in several business and financial publications
that have issued the same warning.
Nonetheless, I don’t believe a return to the traditional pension is in
the cards. Nor do I believe such a move would ultimately be a viable
It’s not that I’m anti-pension; it’s just that times have changed. For
example, years ago people often spent their entire career working for
just one employer. Not anymore.
Today’s workers are far more mobile than their parents. The way so many
people hop from job to job, I believe very few would actually remain
anywhere long enough to become vested in an employee-sponsored pension.
One of the original ideas behind pensions, after all, was to reward
Those 401(k) critics who called for the return to traditional pensions
often failed to mention that many pension plans couldn’t meet their
obligations. Did it help when their liabilities were turned over to the
Pension Benefit Guaranty Corporation? No, because the PBGC has its own
Why did so many pension plans fail? There a number of reasons. Poor
investment decisions by the pension fund managers were very likely among
them. Another factor was that too many plans over promised. In many
negotiated settlements that entailed bargaining, unrealistic results
were agreed upon. Extended life expectancies also contributed to the
failure of so many pensions.
In other words, although pensions sound nice, you have to keep in mind
that they have problems as well. Detroit workers and retirees alike
recently saw their pensions reduced. But they could be thankful they
don’t live in Chicago, which has a pension liability that’s absolutely
staggering. Not to mention several other government pension plans that
are approaching the crisis level.
So if both pensions and 401(k) programs have issues, what’s the
solution? Well, I don’t think it’s anything that can be legislated. What
we need, in my opinion, is education on how to plan for retirement.
I do understand that it’s difficult to think about saving when you’re
living paycheck to paycheck. But too many who are beyond that still fail
to save. Unfortunately, saving for retirement is something many do only
if there’s ever any extra money. Even then, much of that extra money is
spent on a “deserved” or an adult toy that costs “just” a couple
hundred dollars per month.
In other words, bad choices and impulsive decisions are reasons why some
will never have enough money set aside. Saving and investing cannot
compete with short-term gratification. That’s why financial education is
In this world, which I often refer to as YOYO (you’re on your own),
parents and educators need to lead by example. They must teach the
importance of financial discipline, investing and long-term saving.