401(k) Fallout

This video takes an interesting take on some of the risks associated with the 401(k) plan. Although the video is over 10 years old, and it was filmed during the last major market correction(circa 2009), the risk factors surrounding the 401(k) plan have not changed.

Some contextual things to consider while watching the video: The 401(k) plan transfers the retirement risk to the employee. In the past, pension plans were the norm, and the employer would manage the retirement risk for the employee. The year of change: 1974. This is the year ERISA(Employee Retirement Income Security Act). The act itself covers many items, but one major outcome from the passing of this legislation is that the retirement risk transferred from employer to employee. Consequently, the rise in the use of defined contribution qualified retirement plans increased. Some examples of Defined contribution plans are, viz: 401(k), IRA, Roth IRA, and many more. Along this same time, the rise in popularity of mutual funds correlated with the increasing use of 401(k) plans and other defined contribution plans. All of these factors push the risk to the employee, but the employee lacks the control over his funds.

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