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Mutual fund industry defends 401(k) plans

Los Angeles Times

Amid concerns about high fees and weak performance, 401(k) retirement plans have come under heavy criticism.

Now the mutual-fund industry is fighting back.

In a speech Thursday at Town Hall Los Angeles, the head of the fund industry’s trade group said that “despite everything you’ve read about the ‘decline’ of private-sector retirement benefits” 401(k) plans are the best way for people to save for retirement.

“The 401(k) fits the needs of American companies and workers, today and tomorrow,” said Paul Schott Stevens, chief executive of the Investment Company Institute. “It’s flexible and rapidly evolving to continue to meet those needs as our society and workforce change.”

Critics say 401(k)s have numerous flaws, including the risk that employees will make poor investment decisions or not save enough. There’s also the danger of poor timing: Some people have the misfortune of retiring during or after a severe bear market.

Responding to critics who say traditional pensions were better than 401(k)s, Stevens said the older-style plans had their own flaws.

“What’s often overlooked by critics of 401(k)s and self-directed investing are the risks of defined-benefit pension plans,” Stevens said. “Workers move; companies fail; plans go bust — and in every case, ‘guaranteed’ pension benefits suddenly are not as sound as promised.”

As Stevens spoke in downtown Los Angeles, a study released Thursday pointed up another shortcoming with 401(k)s.

About 6.3 million Californians, especially low- and middle-income workers, have severe trouble saving for retirement because they don’t have access to 401(k)s, according to the UC Berkeley Labor Center. It said 75% of those people earn less than about $46,000 a year. Many smaller companies do not offer 401(k)s to their workers.

The typical California private-sector worker without access to such a plan will get Social Security benefits equal to no more than 60% of what they need for basic retirement expenses such as food, housing and healthcare, according to the study.