401(k) plans, named for the section of the US tax code that governs them, arose during the 1980s as a supplement to pensions in the US. It is a retirement savings plan sponsored by an employer. It lets employees save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account..
For generations, pensions were the retirement plan standard for just about every employer in US. Over time, most employers have made the shift from defined benefit pensions to defined contributions such as 401(k)’s. 401(k)swere a big improvement over pensions, giving employees more investment choice, more control over retirement planning and more portability amid the frequent job changes of the modern workforce.
But things have slowly begun to change. Employers are changing what they offer to lower their own expenses and improve profits. Many companies are now delaying their contributions to their employees’ 401(k)s until early the following year, paid in one lump sum rather than through regular payroll checks. These changes depress employees’ compounded returns. And employees at some companies who change jobs before the end of the year wind up leaving company matches on the table. Companies also save costs through lengthy vesting requirements, forcing employees who leave to forfeit unvested contributions.
Some of the largest US corporations are squeezing their workers’ 401(k) plans. Major companies that have engaged in such practices in recent years include RadioShack, Whole Foods Market Inc., Facebook Inc., Oracle Corp., Caesars Entertainment Corp. and JPMorgan Chase & Co.
These measures are making it more difficult for Americans to save for old age.A recent Wells Fargo study of millennials between the ages of 22 and 32 indicated that 87 percent didn’t have enough money to save for retirement — 81 percent were paying off other debts, most likely college loans. Because of these loans, fewer of them are able to qualify for mortgages — which isn’t just bad for the mortgage industry but bad for millennials since a home is a major retirement asset. Millennials are the first American generation not to do better than their parents.
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