BOSTON (TheStreet) -- Americans with 401(k) retirement plans lost about $1 trillion in the stock-market crash. There was no hiding -- few mutual funds were spared.
The latest bear market, following a tumultuous three-year decline earlier in the decade, has hobbled investors, setting back many to where they were more than 10 years ago. As a result, 401(k) plans' inherent deficiencies were exposed, prompting lawsuits, government reviews and proposals for a new way to save for retirement. The 50% rise in the S&P 500 Index during the past few months has hardly helped.
Since they were established in 1978, 401(k)s have grown in popularity and prominence. But the three-decade honeymoon seems to be over. On top of investment declines, there was plenty of insult to add to the injury.
Companies began slashing matching contributions, which once soothed the sting of lost pensions. Participants realized that, on paper, they had control over investment options, but were handcuffed by what was available and their own lack of financial literacy. Exorbitant fees mopped up tens of thousands of dollars of a lifetime of saving.
What gets lost in all of this is that 401(k)s were never intended to be a primary retirement vehicle. So what now?
In Washington, the Obama administration is proposing to improve retirement plans by making sure more people participate. The president is calling for automatic enrollments for companies with 401(k) plans. Any business with 10 or more employees that doesn't offer a plan would be required to automatically deduct contributions into an IRA account.
Not everyone is ready to give up on the 401(k). Michael Doshier, vice president of marketing for Fidelity's Workplace Investing Group, defends them while acknowledging they're in need of a "tune-up."
He praises the system for being resilient enough to withstand even the recent gut punch of a powerful recession and still be able to provide retirees with the 50% to 85% income replacement they need.
Federal law requires employers to evaluate 401(k) providers to ensure that fees are reasonable. But there are no guidelines that define what a "reasonable" fee is.
"The retirement-plan industry has been artful at evading that for a long time, and they have been very strong lobbyists in trying to prevent any rules going into effect that would actually disclose to people the same information they would get if they purchased the same product in an IRA," says David B. Loeper, chief executive of Wealthcare Capital Management and author of Stop the 401(k) Rip-Off!. "If you are paying an extra 1% to 1.5% in fees, the product vendors can make more off your lifetime of savings than you do."
Perun helped craft legislation that would create a universal savings plan for Americans. It would be similar to one that has been in use in England for the past five years.
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