The NY Times enlists Jack Bogle as a character witness in a feature article focusing on whether 401(k) plans should be "reformed or replaced."

For those who know him, "fierce critic" Bogle does not disappoint. He calls the 401(k) system "profoundly flawed even as it has moved to the position of pre-eminence in our retirement system."

"There are elements of the 401(k) system that are just unacceptable if you’re trying to build a system that accumulates for retirement," he adds.

Reporter Stephen Greenhouse's hook is that "As the debate continues over how well 401(k)'s function, some policy experts have called for scrapping the 401(k) system and replacing it with a more universal, less risky system."

According to the paper:

Mr. Bogle ridiculed how easy it was, despite withdrawal penalties, to take money out of 401(k)'s — whether for a down payment on a house, to send children to college or to buy a new rug. Likening 401(k)'s to savings plans, he said making it so easy to withdraw money was the opposite of what retirement plans should do.

Even fierce critics like Mr. Bogle readily give advice on what investors should do to improve their chances for adequate retirement savings. An early champion of index funds, he recommends them for 401(k)'s; they typically have lower annual fees than, and perform as well as, many aggressively managed funds.

Mr. Bogle said many investment funds charged around 2 percent in annual fees, although he noted that some index funds charged one-twentieth of that — just 0.1 percent a year. He calculated that if one obtained a 5.5 percent annual return when inflation was running at 2.5 percent, then the net return would be 3 percent. With considerable chagrin, he noted that a 2 percent investment fee "would consume fully 67 percent of that annual return."

The paper also turns to: Outgoing Profit-Sharing/401(k) Council of America president David L. Wray: "If the goal here is to accumulate money, this system has accumulated more money than any system ever. It's been an incredibly effective accumulator of assets";

Vanguard's Steve Utkus: "Certainly by your 30s, you should be saving 10 percent."

Boston College's Alicia Munnell: "The trick is to contribute from Day 1 if your employer has a plan, and leave the money there."

EBRI researcher Jack VanDerhei: "Figure out where you think you need to be at whatever age you think you want to retire. Then figure out what that's going to translate into in terms of what you're going to need in 401(k) accumulation at that time."

And, critic and New School professor Teresa Ghilarducci: "Every good retirement system needs to have adequate accumulation for individuals, the money needs to be invested appropriately and the payout needs to meet the needs of retirees for life. Unfortunately, 401(k)'s fail in all three categories."

Every newpaper feature needs a victim as a hook, and the NY Times finds John Greene, who retired after 30 years at an Oscar Mayer plant in Madison, Wisconsin, "deboning hams and loading boxes of hot dogs." Greene had used his 401(k) to fund "a wondrous two-week trip to Scotland." Since then, he reports he has lost more than 70 percent of the account, and though his portfolio "rebounded a little," he "can't do trips like Scotland anymore." 

Edited by: Sean Hanna, Editor in Chief


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