December 13, 2008

THE WALL STREET JOURNAL ASKS: Has the 401(k) failed?

I don’t think 401(k)s have done any worse than defined-benefit plans — those are in terrible shape too, as a bit of poking around at will illustrate — but one advantage of 401(k) plans and the like (including 403(b)s, 457s, SEPs, etc.) is that they’re transparent. When your 401(K) balance drops by 30-40% you know your retirement is in trouble; when public (or corporate) pension funds take a similar hit we get bland reassurances that everything’s okay. Isn’t it better to know where things stand?

Of course, with defined-benefit plans, you can always hit up the taxpayers or shareholders, one way or another, to make things up. But that only goes so far, and there’s reason to think we’re hitting the limits of what can be done that way.

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