The 401(k) Is Looking Worse With Age

The 401(k) is nearing age 40, which makes now a good time to evaluate its performance. The results aren't so pretty.

The 401(k) started in the 1970s, and by the mid-1980s it was the fastest growing retirement plan in America. It replaced pension plans everywhere, because it was thought to be cheaper than the traditional pension plans of the day.

These types of plans have been around now for almost 40 years and it’s time to take a look at the results. Employers were supposed to be saving money with these plans, but the results have been less than favorable. Although they may be saving money on plan contributions, employee turnover rates and turnover costs have skyrocketed.

During the pension plan era, employees would stay with the company for 20 to 30 years or more. Employees stayed with the company through thick and thin, because they wanted the security of the lifetime pension.

I remember back in the 90s during the dot-com boom, I would hear young executives brag about jumping from one company to the next, and each time getting a raise. They joked about how their parents would slog it out at the same company for their entire careers. Can you imagine what those young executives that did to the company turnover costs? And what about those young executives? Many of them are in their late 40s and 50s now and today they have a huge problem. Unlike their parents, who retired with lifetime pensions, those inexperienced and naïve executives now find that they can’t retire. The 401(k) plans that they took with them from job to job won’t last throughout their retirement.

So here we are almost 40 years later, and I have one question to ask you. What grade do you give your retirement plan? Be honest. If your retirement plan is a 401(k), or similar type plan, it gets an “F” for failure… right?

So what can you do? Talk to your employer about financing a pension plan. It will give you the lifetime retirement income that you need. It will likely save your employer money overall because of the savings in employee turnover costs, and increased production.

If you have questions, or would like more detailed information about financing a pension plan, send an email to David@theAlemianfile.com, or visit my website CapitalCrestFinancialGroup.com. Absolutely, make sure you come back here next week for another edition of The Alemian File.