Should-Read: Timothy Martin: The Champions of the 401(k) Lament the Revolution They Started: "Herbert Whitehouse, formerly a Johnson & Johnson human-resources executive, was one of the first proponents of the 401(k)...

...His hope in 1981 was that the retirement-savings plan would supplement a company pension that guaranteed payouts for life. Thirty-five years later, the former Johnson & Johnson human-resources executive has misgivings about what he helped start. What Mr. Whitehouse and other proponents didn’t anticipate was that the tax-deferred savings tool would largely replace pensions as big employers looked for ways to cut expenses. Just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979. “We weren’t social visionaries,” Mr. Whitehouse says. Many early backers of the 401(k) now say they have regrets about how their creation turned out....

“The great lie is that the 401(k) was capable of replacing the old system of pensions,” says former American Society of Pension Actuaries head Gerald Facciani, who helped turn back a 1986 Reagan administration push to kill the 401(k). “It was oversold.”... Financial experts recommend people amass at least eight times their annual salary to retire. All income levels are falling short. For people ages 50 to 64, the bottom half of earners have a median income of $32,000 and retirement assets of $25,000.... The middle 40% earn $97,000 and have saved $121,000, while the top 10% make $251,000 and have $450,000 socked away. And the savings gap is worsening.... More than 30 million U.S. workers don’t have access to any retirement plan because many small businesses don’t provide one....

Ms. Ghilarducci wants to ditch the 401(k) altogether. She and Blackstone Group President Tony James are recommending a mandated, government-run savings system that would be administered by the Social Security Administration and managed by investment professionals. While both are Democrats, they believe their solution has bipartisan appeal. “There are a lot of governors and mayors who are Republicans, and the first wave of the crisis will affect states and cities,” Ms. Ghilarducci says.... Others are calling for a national mandate on savings or requiring companies to automatically enroll participants at 6% of pay...

Comments