Time magazine tells us “Why It’s Time to Retire the 401(k).”  They were supposed to be a solid new retirement plan for workers when enacted three decades ago. Since then, while the compensation of Wall Street and corporate CEOs has increased 40 times or more, inflation-adjusted employee income has actually fallen, and the 401(k)s has failed to live up to its promise. According to Time, the odds are heavily stacked against the 401(k) helping you much in retirement:

 The Society of Professional Asset-Managers and Record Keepers says nearly 73 million Americans, or just under 50% of our working population, now have a 401(k). And collectively we pour more than $200 billion into these accounts each year. But retire rich? Don’t bet on it. The average 401(k) has a balance of $45,519. That’s not retirement. That’s two years of college. Even worse, 46% of all 401(k) accounts have less than $10,000. Today, just 21% of all U.S. workers are covered by traditional pensions, and the number shrinks every year.” A major overhaul is essential, “and the government seems to agree. This summer, the Government Accountability Office concluded, ‘If no action is taken, a considerable number of Americans face the prospect of a reduced standard of living in retirement’.” 

Worse, the recent Wall Street meltdown played a “cruel joke to many … closest to retirement. During the market downturn, the 401(k)s of 55-to-65-year-olds lost a quarter more than those of their 35-to-45-year-old colleagues. That’s because in your early years, your 401(k)’s growth is driven mostly by contributions. You control your own destiny. But the longer you hold a 401(k), the more market-exposed it becomes.”

Unfortunately, Wall Street is less help than your company’s boss. The “Fat Cat Bankers” that got mega-bailouts are more focused on generating average $500,000 bonuses for insiders. They do that by generating $100 million daily revenues from the same kind of high-risk “high-frequency” derivatives trading that triggered the 2007-08 meltdown. Their myopic focus on millisecond trading is a conflict-of-interest with the long-term 401(k) retirement needs of Main Street America’s 95 million small investors. Expect things to get worse. No wonder in dark moments skeptics call these plans “201(k)s.

There are major problems build into the 401(k) structure, as USAToday points out: “Efforts to raise 401(k) participation hit snags: Auto enrollment, targeted funds run into unexpected problems:”

“The thinking two years ago seemed logical enough: If more companies would automatically enroll employees in 401(k) plans, then offer them the simplest of investment strategies, the employees would get a leg up on retirement savings, and we’d all be better for it.”… But for “people living paycheck to paycheck who are automatically enrolled may eventually find themselves in financial distress. But if they cash out the saved money after the opt-out window, usually 90 days after enrollment, they will face income taxes and a 10% penalty if they’re not 591/2 or older.” … Plus, “auto enrollment could have a negative impact on savings, because it tends to cause employers to lower matching contributions for employees” Also “target-date funds are supposed to shift investments over time to become more conservative” yet last year some lost over 40% in the downturn.”

For more formation on plans: See “How Good is Your 401(k)?” in BusinessWeek: Read about “BrightScope, a San Diego startup, wants to help 401(k) participants and administrators” that “has created a massive database from corporate filings with the Labor Dept., Securities & Exchange Commission, and other sources, to rate 401(k) plans.” And if you’re a self-starter, check out Boston University Economics Professor Larry Kotlikoff’s ESPlanner, which “calculates your sustainable living standard and helps you find safe ways to raise it.” But overall, the 401(k) ship is slowly sinking, and these efforts to improve your plan may never compensate for the problems inherent with the 401(k) itself.