Teresa Ghilarducci: The 401(k) Retirement System Has Failed

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The proposal is an excellent one. It's too bad most people don't have the background to understand just how good it is. As she correctly points out, 401(k)s and other self-directed defined contribution plans are no solution for guaranteeing retirement income.
The idea that each of us is supposed to be his own financial analyst is incredibly naive. It is convenient for the mutual funds that eat up our fees, and it is convenient for competing professional investors who eat amateur investors alive. I'm not my own cardiologist or tailor or butcher. Division of labor is the hallmark of an efficient economy.
Hard as it may be to believe, traditional defined-benefit funds do what they do very efficiently. They are managed by professionals. They have no definite cash-out date (each participant retires at his own date, so on the average, retirement is predictable), which means that the fund never has to sell in the trough. They are large enough that they cannot be wiped out. They aggressively file derivative suits when mismanagement damages their bottom line. For a given benefit level, a defined-benefit plan will perform as well as a defined-contribution plan for a significantly lower cost.
So why are companies shifting to defined-contribution plans such as 401(k)s? There are two reasons. One is that defined-benefit plans are over-regulated, and compliance is expensive. The other is that, with a defined-contribution plan, the participants are actually getting a much *lower* level of benefit. So the companies are getting liabilities off their books, but the employees are getting little in return.
Poverty among the elderly was suppressed in the 1960s, because so many retiring workers had pensions. The Baby Boomers are in for a hideous surprise.

Alex of NY 4:49PM March 11, 2013

Ghilarducci's proposal is idiotic. Social Security is going broke now. How is it that the new GRA is going to be "invested" any better than the Social Security "Trust Fund"? Now if Ghilarducci simply wants to increase the amount everyone receives, we are back to the same problem - either people save more (which they don't want to do) or the government prints money (which will eventually make the system collapse). The bottom line is there is no free lunch. The GRA is simply a socialist excuse to expand our bloated Government even further.

Armando of NJ 5:16PM May 31, 2012

If the program is elective I say let's try it. If it is mandatory I say forget it. The Wall Street crowd will always oppose the middle classes' access to wealth that does not flow from their greedy little priviledged paws. Wall Street should be so well regulated that we should know every time they fart. Their greed and homage to pure capitalism is the real source of our decline. They chase the buck not the enrichment of our society. They have preyed on our freedoms in the marketplace to destroy our marketplace and have moved overseas. They have moved our factories to Communist China;therefore, proof that capitalism has no real Democratic roots. I have never heard of a Labor Union moving a factory overseas. By the time they get through with our new Health Plan it will be more costly than a home mortgage and will eventually lead to a forced Universal Health plan run by the government, which I oppose. Let the workers and the middle class have another option rather than a 401k that could and has proven
to be fertile ground for the greedy ba#@$%s on Wall Street.

Joe Scovel of UT 1:58PM October 28, 2010

This broad is a total nutjob.....And her plan would ONLY require another beaurocracy of about ANOTHER 100,000 losers on the 'dole'...

john doe of NH 11:17AM October 25, 2010

Okay, to all you in the crowd known as "I-got-mine, you-get-yours" gang, let's reverse the field of play...go ahead, put your money away in the stock market (which what you really want to do, isn't it?)...and work to put an end social security completely.
I predict you will then whine about inflation and the (FED), and you will whine about doubling-dealing no-count accountants who cooked the books of your chosen corporations.
Go ahead, buy equities and bonds, but don't come knocking on my dooor when you are wiped clean...
From my standpoint, I go with the people who have the right "to coin money, and establish the value thereof...".
;)

Richard of MN 12:08PM September 20, 2010

GRA is just a warmed-over version of an old 1960's leftist/marxist item they called GUARANTEED ANNUAL INCOME. That dog didn't hunt then and it won't get any traction now.
The problem with academics, like Teresa Ghilarducci, is that they live in the isolated dream world of academia. Their intellectual accumen is not grounded in practical, real world experience. Put another way...they don't have a clue.

william johnson of CA 12:16PM September 18, 2010

This woman is absolutely incorrect. Most folks I know who are close to retirement and have been saving in their 401k for years, have quite a some of money built up. The problem Teresa has with the 401k is that its a private fund which is privately controlled. She wants to take the retirement dollars from those of us who have been disciplined enough to save and spread them among others who have flagrantly ignored their future. I don't know about others here but my answer to her is not only no but Hell no. Taking my 401k would be theft plain and simple.
Further the governments track record for managing retirement funds is the worst in the world. I would be happier if I could take my social security and invest it my self, where no politician could get near it. And as far as investment understanding goes, theres not that much rocket science in watching a market and making investments. This is absolutely the dumbest idea I have ever heard, and purely communist to boot,

Bobby Hawk of AL 9:29PM August 28, 2010

This woman has read how to be a Marxist. I am sick of it. Social Security will work and does work only if the government would stop taking money from it. The government has I can't tell you how many programs that are being run off of social security? Everytime they want to start something they have to dip into social security. Now of course they want to grant illegal's access to social security, so there will be even less to go around. Yup, this is a very sick society we live in. Rich taking from the poor to give to the poor, calling it fair. Now they want to tell me how to invest for my retirement? shouldn't I make that decission to sink or swim? I am sorry but this woman needs to leave America and go to Europe to be happy. I am sorry this wicked woman needs to seriously leave America and fast. Leave my country alone.

Tony of NV 8:22PM July 21, 2010

This woman - like the rest of the Democrats - is simply PSYCHOTIC. I just don't understand why they don't leave this country if they are so infatuated with Communism! I don't need the government "protecting" me from the stock market. I don't need them regulating salt to "protect" me from my own bad food choices. I don't want the government in my life. If you do - then move to Russia, China, North Korea, Canada, or any 1 of a zillion other Communist or Socialist nations. JUST GO AWAY! Leave this country and leave the rest of us ALONE. I don't need your "protection" Teresa Ghilarducci!

Todd of OH 1:32PM July 21, 2010

Gee Teresa......and just WHAT will our beloved federal govt beaurocrats do with the money? Presumably the same they've done with excess ss taxes over the last 30 years -- spend it and promise to pay it back later. So they stuffed the 'lockbox' in WV full of IOUs.
Sorry, I don't like that option for my future 401(k) savings. Maybe you should move to a state-controlled country more to your liking. Our country's obviously not socialist enough for you.

sbourg of MD 5:16PM May 24, 2010