Thursday Underrated Economics Weblog: Middle Class Political Economist
Middle Class Political Economist:
Last week the Washington Post ran a story on the weaknesses of 401(k) retirement accounts, focusing on the the fact that 1/4 of Americans with 401(k)'s have used them to meet current income needs. Among people in their forties, the share rises to 1/3, an astounding figure considering how close this group is to retirement. In the wake of the Great Recession and continuing job market problems, it is perhaps not surprising that 28% of 401(k) account holders presently have loans against their accounts. As the Post delicately puts it,
Many employers have embraced 401(k) and other defined-contribution accounts as a way of helping workers save for retirement while relieving themselves of the financial risks that come with managing a traditional pension plan. In theory, 401(k) accounts are better suited to an economy in which workers are changing jobs more frequently than ever because the accounts can be rolled over from previous employers.
A more accurate way of saying this would be that employers have embraced 401(k) plans because they are less expensive than providing pensions, thereby "cut(ting) overall employee compensation," and that 401(k) plans don't take into account the stagnation of real wages, points well made by commenter "Sean2020." Moreover, as I reported before, 49% of private sector worker have neither a 401(k) or a defined benefit pension plan. Thus, they have no supplement to their eventual Social Security benefits unless they are able to save outside of a 401(k).
