PM
FINANCES
Why 401(k)s Were Never Intended to be Your “Plan A”
for Retirement
Most practitioners have no idea that today’s 401(k) retirement model was largely an
accident. It was never intended to be the bedrock of American retirement planning.
A Brief History
In 1978, Congress passed a bill they thought would put the brakes on high-paid
executives abusing the perks of cash-deferred plans. It added an obscure 869
word section to the Internal Revenue Code (called “Section 401(k)”) written by an
unknown 29 year old junior attorney. Nobody had any clue that history was being
made.
But it came at a pivotal time. The retirement landscape was shifting. For decades,
“lifer” employees. But companies saw the writing on the wall. The crushing cost
of guaranteeing a cushy retirement was unsustainable. They saw the 401(k) as a
chance to shift the responsibility for retirement planning onto employees. And so,
within a few years, that 869 word section of the Revenue Act of 1978 became the
cornerstone of American retirement planning.
According to a recent article in the Wall Street Journal - “Many early backers of the
401(k) now say they have regrets about how their creation turned out despite its
emergence as the dominant way most Americans save. Some say it wasn’t designed
to be a primary retirement tool and acknowledge they used forecasts that were too
optimistic to sell the plan in its early days.”
The Case Against The Modern 401(k)
The primary advantage touted by advocates of traditional 401(k)s is the opportunity
to defer taxes on the dollars you are earning today. But at what cost? You are
putting hard-earned money into a lock-box you can’t open until you’re 59.5 years
28 TPDMAG.COM | SPRING 2019
/TPDMAG.COM