from Truthdig:
The 401(k) Myth Posted on Dec 12, 2007
By Marie Cocco
WASHINGTON—The great 401(k) bonanza may well turn out to be a bust for most workers. This is not news to millions who know their account balances, or to low-income workers whose employers rarely offer them the chance to open an account.
In the 1980s and, especially, the go-go 1990s, the 401(k) was the wondrous new invention that was supposed to make assembly-line workers capable of becoming rich, in retirement, through their own industriousness and, lest we forget, the magic of the stock market. The myth began to fade amid Wall Street’s uncertainty during the past decade. It should be buried—deeply—with the latest Government Accountability Office report on the savings plans that have become the primary form of pensions available to that half of the private work force that has any pension at all.
Projecting retirement savings based on those currently participating in 401(k)-style plans, the GAO found that the youngest workers—those who’ve been told from the start that their jobs would provide no traditional, fixed-benefit pensions of the sort that their grandparents or parents might rely on—face the prospect of paltry incomes in old age. More than a third of those born in 1990 could be predicted to have no savings at all in retirement, the GAO found. Among the lowest-income workers, 63 percent would have no savings in their plans when they retire.
What about more diligent savers? Overall, the GAO found that as a group these retirees would have an average income of about $18,784 a year, or just over $1,500 a month. Among the highest-income workers, a fund balance that is used exclusively for monthly income—not for extravagant extras—would be $50,098 a year.
“Some will have very little, some will have almost nothing, and some will have nothing when they retire,” says Rep. Robert Andrews, D-N.J., who chairs the House subcommittee on health, employment, labor and pensions.
Flaws in the very structure of 401(k) plans are at the root of why they don’t work well. No employer is required to offer a 401(k), let alone provide one for every worker. The GAO found that only a quarter of the lowest-income workers were offered any type of retirement plan. Among low-wage workers who could save through a 401(k), only 8 percent chose to participate. Making enrollment automatic, rather than optional, would particularly help those working for low wages, the report suggested. .......(more)
The complete piece is at:
http://www.truthdig.com/report/item/20071212_the_401k_myth/