Since the mid-nineties, when the Wall Street powerhouses announced a strategic shift from a commission-based business model to an asset-based model, all retirement plans have been targeted as one way to accumulate lots more assets under management, now almost $3 trillion. This trend is accelerating as Corporate America began replacing employer-funded pension plans with 401(k)s funded by individual employees.
Experts see many problems in employer-sponsored 401(k) retirement plans, which one BusinessWeek columnist jokingly called “201(k)” plans. A big failing in the system is the way fund plan managers like Fidelity, State Street, Putnam, Metlife and others lock in company executives and naïve investors to a system of fund choices that are too restrictive, fees that are often hidden and excessive, while trusting corporate managers and employees remain vulnerable to exploitation and manipulation. College tuition plans have similar problems.
Several years ago economist Bill Wolman and Anne Colamosca, authors of The Great 401(k) Hoax, said it’s “a time bomb ready to go off.” In fact, America’s 401(k) plan has already “bombed” because $40,000 is no long-term retirement nest-egg in an age where a retiree’s money must last 20-30 years, and need a million invested to generate a comfortable cashflow in retirement. As the authors point out, many employees don’t even bother to enroll, and of those that do, 80 percent spend the money when they change jobs, rather than rollover into a IRA. Worse yet, during the 2000-2010 decade, many 401k plans actually lost big money. This would be funny, if it wasn’t such an ever-increasing disaster. (More)