Whither 401s? . plans are being re-examined - k - From the Editors - 401k - Brief Article - Statistical Data Included - Editorial

HR Magazine, June, 2002 by Leon Rubis

As a benefits consultant in the early 1980s, Ted Benna designed the precursor of the modern 401(k). The plan design quickly gained popularity during the bull markets of the 1980s and '90s. Along the way, it evolved and added features.

Yet Benna, often called "the father of the 401(k)," once told me that if 401(k)s were created today from scratch, they probably would be designed very differently.

There certainly are reasons to make changes. Many workers still do not participate in or take full advantage of their defined contribution plans, and many employers still do not offer them. Average account balances remain relatively low, and many people cash out their savings when they change companies.

And just as long-running bull markets highlighted the strengths of 401(k)s, recent developments have spotlighted their disadvantages. Two years of a bear market have taught many people that investing is not as easy as they thought.

The Enron collapse, in which employees lost $1 billion in retirement accounts, highlights the hazards of employee inattention and company negligence. Many participants loaded up on company stock, either ignorant or heedless of advice to diversify their investments.

As the 401(k) enters its 20s, people are taking another look at its effectiveness in building retirement security. Our examination by business writer Carolyn Hirschman starts on page 30.

Leon Rubis