Page 4 - The Great 401k Rip-Off

Still, we don’t look at it that way. We see our accounts increasing, and so we believe we are getting
good returns, not understanding the increases are largely because of our contributions. We fool
ourselves into believing we need the growth to retire securely. Moreover, once fooled, it is hard to
be convinced otherwise, especially in today’s siloed media and echo chambers.

Wall Street does nothing to disabuse us of this, even though these things have been proven false
repeatedly. If anything Wall Street uses the echo chambers, confirmation bias, and people’s desire to
be fooled into thinking everything is going to be okay, to keep the status firmly quo.

How did we get here?

In 1978, Congress passed the Revenue Act of 1978 (go figure!), which was supposed to be a routine
budget act that was not intended to shake up the world. However upending the world is exactly what
happened, and that law forever changed the way people in the United States retire [6]. It has also
had a major impact on our collective consciousness about markets and risk‐taking.

Before 1978, there existed deferred compensation arrangements known as CODAs (“cash or deferred
arrangements”), which allowed some compensation to be deferred, along with the resulting tax
liabilities. [6] Many people considered a rather exotic arrangement, and there existed a great deal of
uncertainty and confusion, as IRS continued the effort to abolish them while employers pushed back.

There was also a predominance of defined benefits, or pension, plans in existence for most workers,
before 1978. [7] Once vested, these plans guaranteed a specific amount of income that would be
paid in retirement – hence, “defined benefit” – usually a percentage of salary. An example would be
60% of the average of the top three years of earnings. Notice, however, who takes the risk in these
plans. Since benefits are defined and guaranteed, if they fall short, the plan is on the hook, not the
retiree.

The whole sordid 401(k) saga largely involves big corporations dumping their pension plans in favor
of 401(k)s and then brazenly gaming the bankruptcy laws to eliminate their pension plans, as
reported by veteran New York Times journalist Hedrick Smith in a PBS Frontline report called “Can
You Afford to Retire?” which originally aired in May, 2006. [8]

4 www.TheGreat401kRipoff.com