You don’t have to spend much time scanning personal finance news to come across articles pointing out various flaws with the 401(k) system. Just recently, Slate.com told us the 401(k) world “sucks,” while Reuters published a more nuanced piece that asked, Are Employers with Auto-Enroll 401(k) Plans Less Generous?
I’m tempted to respond to the articles point by point. (The Slate piece in particular seems to reveal a lack of insight into how most companies enroll employees in their 401(k) plans.) But let me step back so I can make a more important point. Namely, that the 401(k) world does need to get better – and that some of its strongest critics come from inside the industry.
Consider the remarks made by BlackRock CEO Larry Fink in a recent speech at NYU. Larry said that Americans have not saved enough for retirement. He pointed out that our increasing longevity is putting stress on the retirement system. Among the potential solutions to consider, he called for greater employer contributions to 401(k) plans and raised the possibility of a mandatory retirement saving system.
By sounding the alarm on the current state of retirement funding, Larry hoped to spark a national debate on the issue. What he is not doing is saying, “Let’s just throw the whole thing out!” While the 401(k) system is not perfect, it has evolved tremendously over the last twenty years. It is worth taking a look at what’s right, what’s wrong, and what’s next for the system.