Key shortcomings of today's 401(k) plans:
Although the market collapse has increased the urgency of efforts to reform 401(k) plans, it is important to note that the shortcomings of these plans existed long before the the past financial crisis. Retirement income is not protected from adverse market conditions, assets can be exhausted during retirement, most participants are not saving enough, there is still the problem of lack of participation, and the potential for increased fiduciary exposure exists.
However, these drawbacks do not mean that 401(k) plans cannot help employees achieve a secure retirement. Many employees have embraced these plans and use them as their primary retirement savings vehicle. What these plans need is the incorporation of the following three elements:
While almost all investors were affected by the market collapse in 2008, Baby Boomers approaching or in their first years of retirement were among the most seriously impacted. Near retirees, especially those without access to other sources of retirement income such as a defined benefit (DB) plan, now find themselves having to delay retirement. Legislators, plan sponsors, and plan participants are questioning the long term viability of their 401(k) plans and whether 401(k) plans are equipped to serve as their primary retirement savings vehicle.
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