The Success and Deficiencies of the 401K Plan
As a non-compulsory pension scheme, the 401k plan has grown rapidly, covering about 300,000 businesses in just 20 years, involving 42 million people and 62% households, and has become the mainstream of the system of contribution to best 401k plans. The main reasons are:
(a) Tax incentives are the driving force behind the development of the 401k plan. Before that, the supplementary pension insurance plan is mainly paid by companies, you can benefit from tax benefits, if there is an individual contribution is subject to tax. As a result, America's personal savings rate has been low, and people are more likely to spend over the current period. Through the preferential tax policy of individual contributions, Plan 401k achieves the design of the system of the state, the company and individuals to share responsibility for the old-age pension of employees, which has a great attraction for businesses and employees.
(b) The design and monitoring of the pension-oriented "ers- system" has increased the savings rate. In order to achieve the goal of old age, The 401k Plan punishes early withdrawals by strong regulation, effectively encouraging savings. The results show that the 401k plan could increase the national savings rate by at least 89% over the initial marginal savings preferences of the United States.
(c) Mature capital markets provide an appropriate market environment for long-term investment in pensions. In the early 1970s, the U.S. capital market began to enter the era of great change, the more mature market, the investment tools increasingly rich, coupled with the legal and regulatory system and the regulatory system is very strong, including the 401k plan, pension assets become the cornerstone of the U.S. capital market , and the capital market has formed a benign interaction with developments. In particular, the rapid increase in institutional investors, represented by mutual funds, held 51.5% of the total plan assets of $401,000 in 2004, or $108.6 million.
(d) Other features. First, the portability of individual accounts is conducive to labour mobility, the second is that employees have investment options to promote their active participation, and the third is that corporate support contributions help attract and retain talent. These features help businesses and employees participate in the 401k program.
Problems with the 401k plan
Despite the success of the 401 program, it also faces some problems.
(1) The development of the 401k plan is beginning to slow down. The first is that fewer and fewer young people are joining the 401K program, paying high loans for colleges, taking on credit card debt and putting excess money into the housing market. The second is that the "baby boomer" generation that originally joined the program is already in the receiving period, and most will cancel their 401k accounts when they retire.
(2) The employee took excessive risks. Depending on the design of the system, the investment and operational risk of the 401k plan are fully assumed by the employee, and if the investment fails, it will result in irreparable damage. In the case of Enron, the collapse of Enron, which lost more than $20,000 in pension losses to more than 20,000 Enron employees, resulted in a significant portion of its stake in Enron's shares and limited sales. Depressed capital markets in previous years have also led to a sharp decline in U.S. pension assets, resulting in significant losses to employees' personal accounts. Currently, hybrid programs that combine the strengths of DB and DC programs are growing rapidly in the United States.
(3) It is difficult to fully achieve the goal of care for the elderly. The 401k pension is determined by the employees themselves, who choose to take them in a single lump sum, making it difficult to ensure that the pension is used properly after retirement.
