With the financial market meltdown and the plunging value of the average worker’s retirement portfolio, an overhaul of the 401(k) retirement savings plan option, which may even include the use of exchange traded funds (ETFs), has been the talk of the town.
According to the Employee Benefit Research Institute, the average worker’s 401(k) account balance has diminished by 21%-27% in 2008. In order for the 401(k) savings plan to work, gains from long-term investing are pivotal.
With these kinds of losses and the huge number of Americans who have failed to participate in such programs, either because of a lack of availability or stagnant income, the program should be reevaluated, states Jim Puzzanghera of the Los Angeles Times.
What are possible options to fix the problems with the current plan? A professor from the New York New School of Research suggests that the government should eliminate annual tax breaks for 401(k) savings and use these revenues to fund a government-backed retirement savings account which guarantees an inflation adjusted return of 3%.
Jacob Hacker, a professor of political science at UC Berkeley, has proposed some sort of a government guaranteed retirement account. The Aspen Institute’s Initiative on Financial Security proposed a government match for low-income individuals and guaranteed annuities to supplement Social Security. Some, such Darwin Abrahamson, CEO of Invest n Retire, are already implementing ETFs in 401(k)s to alleviate the problem .