The recent Wall Street Journal article, “The Champions of the 401(k) Lament the Revolution They Started” voicing those who see the 401(k) as a failure, paired with the thoughtful rebuttal by Nevin Adams of the National Association of Plan Advisors got us thinking.
Nevin Adams rightfully notes the challenges of the 401(k) (voluntary enrollment, limited uptake by small employers and overbearing complexity), while pointing out that defined benefit plans were not a panacea for a secure retirement. All great points, but most worthy of note in our view is that prior to the 401(k) plan, 60% of workers were not covered by any retirement plan and today over 60% at least have access to coverage (you can lead a horse to water….).
The 401(k) made it possible for tens of thousands of small businesses to set up a retirement plan whereas those very same businesses could never afford a defined benefit plan. Furthermore, the program is still in its infancy (well, maybe a toddler). The 401(k) dates back only to 1978, and plans didn’t become widely available for a number of years thereafter. In a relatively short amount of time we have seen enhancements to the 401(k) that have extended their reach. Automation has reduced the cost of administering 401(k) plans while automatic enrollment has boosted individual participant rates.
Of course, there is more work to be done. Most interesting would be the development of open MEPs administered by independent record keepers which would increase employer adoption rates, further reduce costs and eliminate obligations to proprietary products. Happily, it appears open MEPS have a real chance of becoming a reality this year. So as we start the new year, we can confidently submit that 401(k)s have come a long way in a short time and continue to head smartly in the right direction.