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System 401 (K), introduced in 1978, shows its age and grappling with significant challenges.
Currently, only about 50% of workers have access to these plans through their employers, and the system was not built to adapt to today’s mobile workforce, according to Laurie Rowley, co-founder and ICON CEO, retirement company.
This has resulted in major problems with the portability of the account and the worrying number of lost pension accounts. In a recent episode of retirement decoding, Rowley emphasized these shortcomings in the US pension system.
“The failure of Plan 401 (K) is because it has never been constructed to be portable,” Rowley said. “There are all these patchwork systems that people can use,” she said, but added that these systems are imperfect.
According to Rowley, when an employee leaves an employer with Plan 401 (K), one of four things usually happens.
Some leave their 401 (k) behind. Rowley noted that about 25% of all property in 401 (K) plans were abandoned or lost. It’s 29 million people who lost their 401 (k) plan. “When they get away from it, they forget where it is,” she said.
The second plan 401 (k) overturned in Ira. About $ 800 billion was taken out of 401 (K) plans and Ira.
A small segment of people decides to transfer it to a new employer plan 401 (K), but it is often “difficult to switch to plan 401 (k) of another employer,” she said.
In other cases, the employee introduces their 401 (K).
“That’s the failure of the portability in my opinion,” she said. “There is a lot to expect people to make these decisions every time they change jobs on where they will put a retirement plan, which investments will have.… This is the most important wealth that people have in their lives, and we ask them to change it every few years.
One of the ways in which pension account owners can deal with the challenge of “transparency” is to roll over their 401 (K) in IRA.
“I absolutely think that every individual should keep their pension plans with them,” she said. “I think you should get him out of the plan of that employer and put him in Ira to have control over him.”
That way, “they know where she is,” she continued. “They can monitor their investment. They can watch fees and their portfolio and not be subject to the loss of their plan … I think people need to keep that property with them throughout their lives.”
