WSJ 401k Article

Today’s Wall Street Journal featured an article on 401k plans entitled “Big Slide in 401(k)’s Spurs Calls for Change.”  The article broadly covered the issue of declining 401k balances without going into many details about actual proposals to reform the system.  While the article may have lacked substance, the 401k issue is clearly resonating with readers.  As of the end of the day the article was the most commented-on article on the Wall Street Journal website:


This issue is clearly front of mind for many Americans and the comments on this article are telling.  Many commenters aren’t convinced that 401ks are truly broken and many others are wary of any more government intervention.  One astutely asked:

Would like to see an article on how well “professionally managed” pension funds have done!

The answer to that question is of course that pension plans aren’t immune from the worldwide decline in asset prices either. While it is easy to say that because asset prices have fallen, 401k plans have “failed”, I wonder if the author would also consider a severely underfunded pension a failure.  Here is a recent report from Mercer:

According to Mercer, pension plans sponsored by the largest US companies have seen a decline in funded status (the ratio of assets to liabilities) from 104 percent at year-end 2007 to 75 percent as of December 31, 2008. This equates to losses of an estimated $469 billion over 2008, causing an aggregate surplus of $60 billion at the end of 2007 to be replaced (by) an estimated aggregate deficit of $409 billion at the end of 2008.

At a time like this it is vitally important that Americans receive fair,  and objective analysis about 401ks.  Pension plans, brokerage accounts, real estate and other assets have all fallen precipitously in value.  This is not a 401k specific problem.  Articles like this need to properly weigh the alternatives.