Those on both sides are arguing the merits and the downfalls of the 401(k). The Wall Street Journal’s article earlier this week, then a couple of responses to it from Bloomberg and Forbes have shown that the argument of whether or not a 401(k) type investment can be the sure path to retirement security has people on both sides trying to convince you, dear reader, which way to go when planning your future. Yep, the old debate is back again. .
Our position is simple, and accurate. We agree with the Wall Street Journal’s article (which comes straight from the source of those who designed the 401(k) system in the first place) that 401(k)’s were never meant to take over as a viable retirement security mechanism for the average worker, but rather, to supplement a traditional pension.
What's the Real Goal?
“What’s being lost in the rhetoric is the point of what we’re ALL trying to accomplish – or what we should be focusing on: better products and services for customers. We want people to focus on working hard and doing their jobs, and when they’ve fulfilled that part of the deal, allow them a mechanism to retire with some dignity and security. A pension provides that. That is the point of a retirement plan,” Says Bob Wilson, LAGERS Assistant Director, Member Services. “The point of a 401(k) is wealth accumulation, which can be a good tool to help supplement a pension plan.”
Wilson says the old “three legged stool” approach still applies. “Defined benefit pensions were never designed to be the stand alone solution. Neither were 401(k) type investment plans or Social Security. They were designed to work together, providing diversity and balance. There is no shortcut or magic pill in retirement planning. You have to be diligent, work and plan. Well-designed pensions are a great stable base to add a wealth accumulator like a 401(k), but alone a 401(k) is too volatile to serve as a stand-alone retirement plan. Having that stable base allows you to withstand the volatility of your 401(k) due to market swings without getting short-sighted, panicking and/or giving up.”
Security - What Matters
The shift of companies away from pensions in favor of 401(k)’s as the main form of retirement security reflects a lack of commitment of the employer to the workers and the communities. The fact that the creators of the 401(k) system have regrets about the path they started for the American worker in the early 80’s shows that they can be unreliable on their own.
We at LAGERS want our members to worry about serving their communities that they work in, not their retirement security. We want good employees to plant roots within their communities and stay. A pension offered by an employer helps employees to feel a little more secure about their futures. “The driver of these plans is to make the communities better and give some security to those who serve. We all want to retire with dignity,” says Wilson.
The Solution to Retirement Security
So what’s the solution? A combined approach. A commitment to work. A commitment to save. A commitment to employers and our communities. A long term mentality. The promise of a dignified exit from the workforce. That’s what’s going to create retirement security for all of us.