The 401(k) plan is "certainly under attack," Brian Graff, executive director and CEO of the American Society of Pension Professionals and Actuaries, told attendees at this year's ASPPA 401(k) Summit, held in Las Vegas last month. He made his remarks as moderator of a panel discussion that addressed whether 401(k) plans are failed experiment.
And while no one agreed the 401(k) system is a failure, there were differing views on how successful it's been.
"An experiment suggests something with a start and a stop to it," said Kevin Crain, head of institutional retirement and benefit services with Bank of America Merrill Lynch, pointing to auto-enrollment and auto-escalation as signals the industry is addressing deficiencies in the system.
But Karen Friedman, executive vice president with the Pension Rights Center, maintains that while 401(k)s work really well for people who can afford to contribute large amounts and who don't withdraw the money, they do little for low- to moderate-income workers.
Judy Miller, director of retirement research with ASPPA, disagreed with Friedman, saying the 401(k) system has been very successful at encouraging people of moderate income - those earning $30,000 to $50,000 a year - to save. "Over 60 million Americans are covered by 401(k) or similar plans and 80% of them make less than $100,000 a year," she said, adding that 401(k)s are the "only way we've gotten middle Americans to save on their own out of their paycheck."
She continued: "It's ludicrous to tear the system down. We have the system we need. We just need to make it work better."
Friedman countered: "We're not trying to completely tear down the system. We want alternatives. We think [401(k) plans] are a gamble. They work for some people but there are a lot of risks and responsibility on the shoulders of individuals."
Friedman advocated for a system where accumulations are paid out as lifetime payments. "We'd like to encourage annuitization," she said, but acknowledged that "in order to do that we have to overcome some psychological barriers. People are reluctant to hand over large amounts."
Graff expressed frustration over how annuitization is perceived. "There's lots of hand wringing in Washington over annuitization," he said. "The discussion is framed as somehow [that] the 401(k) is preventing people from getting lifetime income options. Nothing in the law is preventing it; they just don't do it."
Friedman also noted that a lot of people will take out money from their 401(k)s in the form of loans and that the retirement industry has to consider the reality that "individuals in this country are more burdened than ever and worried about their daily needs. In that [reality], 401(k)s and retirement are the last thing on the list."
