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View Diary: Lord, won’t you buy me a new pension plan (16 comments)

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  •  Lack of contributions (5+ / 0-)

    is only part of the problem.

    The reality is this:  Section 401k of the IRC was originally written to provide for a supplementary way of saving for corporate executives in addition to their pensions.  It was bastardized in the 80's when a Wall Streeter figured out they could be sold to the masses as a replacement for traditional DB plans, with the idea being Wall Street could get its vig.  They were sold under the guises that you could have far more for retirement with a 401k than you'd get with a traditional DB plan.  Of course, that is only true if you play the Wall Street casino just right.

    Of course, Wall Streets vig has already been discussed above by yourself and another poster.  But that's only another part of the issue.  The final - and largest issue - is that the vast majority of people are not savvy, informed investors, and will never be savvy, informed investors.  They simply do not have the time needed to put in the effort to do proper research, and in many cases, don't have the knowledge needed to understand what they're doing even if they did have the time.   Even still, not everyone could even acquire the knowledge if they wanted - the simple fact is there are a lot of people out there that are simply not all that intelligent.

    Given all that, many can and will lose their shirts by choosing investments poorly and end up with nothing or next to nothing.  Many won't lose their shirts, but at the same time, won't be able to invest successfully enough to build an appropriate sized next egg.  It's a rare few that have the knowledge and skills required to research well and invest in a manner where their 401k gets a decent return for the majority of their working careers.

    OTOH, pensions take the difficulty of investing out of the equation.  Professional fund managers handle the research and choose the items to invest in.  As such, most well run plans get far better annual returns than Joe Sixpack can get.  Additionally, due to their actuarial nature and shared risk, pensions require less accumulated capital to pay out a certain annualized benefit amount than a 401k that would pay out the same annual amount.

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