Providers of 401(k) plans have lambasted a critical article published Oct. 9 in Time magazine denouncing the 401(k) system.
In “Why It's Time to Retire the 401(k),” Stephen Gandel argued that the 401(k) system isn't a sufficient vehicle to replace defined-benefit plans as the only way for employees to save for retirement.
“The ugly truth ... is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves,” he wrote in the article. “In a system in which one year's gains build on the next, the disaster of 2008 will dent retirement savings long after the
recession ends.”
Mr. Gandel didn't respond to an e-mail seeking comment on his article.
Retirement system advocates, however, have been letting their own comments fly. The Profit Sharing/401k Council of America, for one, took to the web the day after the article was published, disputing many of the points brought up in the story.
In a blog post “Time Magazine 401(k) Article: Advocacy Dressed up in Journalism,” PSCA president David Wray argued that the article is filled with misrepresentations.
Among them, he wrote, is the article's claim that the average 401(k) account balance is $45,519. That's misleading because Mr. Gandel failed to point out that the “typical 401(k) participant has only eight or nine years of participation with their current employer,” Mr. Wray wrote.
The article also didn't take into account the billions of dollars rolled into individual retirement accounts from 401(k) plans, he wrote.
The PSCA also wrote a letter to Time disputing several points.
Putnam Investments' president and chief executive, Robert L. Reynolds, also wrote a letter to Time, arguing similar points.
“What really surprised us was how out-of-date the article was,” Mr. Reynolds said in an interview. “It failed to mention the Pension Protection Act of 2006, which brought to the forefront so many things.”
In an Oct. 14 blog post, “Bad facts, bad story,” Stephen Utkus, principal at the Center for Retirement Research at
The Vanguard Group Inc., also took issue with Mr. Gandel's portrayal of the DB system as a good solution.
“Even in their heyday, the mid-1970s, traditional pensions covered only 40% of private workers. Benefits varied widely — from meager plans paying little to very generous ones,” Mr. Utkus wrote.
Financial advisers and consultants gave the Time article mixed reviews.
Although Don Stone, president of Plan Sponsor Advisors, a 401(k) plan consultant, said he thinks that the article was “just trying to be sensational,” some advisers thought it might help convince employers to talk more to employees about their retirement savings.
Marcia A. Mantel, principal at Mantell Retirement Consulting Inc., said that she plans to use the article when talking with employers about educating plan participants.
“Employers need to do more,” she said. “I'm not advocating restarting your pension plan, but they need to bring in more education and get employees to go these sessions.”
E-mail Jessica Toonkel Marquez at [email protected].
