The truth is that defined contribution plans have been a mess since their inception.
Unfortunately, we estimate that well over 90% of defined contribution plans are not operated properly.
In recent years, defined contribution plans have been steadily replacing defined benefit plans across most industries.
FORBES: The Pension Benefit Guaranty Corporation's Real Crisis
That's because of a crucial difference between defined contribution plans like 401(k)s and defined benefit pensions.
To punish private sector defined contribution plans and reward public sector defined benefit plans is egregiously self-serving.
This total would include the sum balances of a traditional IRA, Roth IRA, 401(k) and defined contribution plans.
Worst still are the high cost variable annuities with mutual fund clones that pervade the governmental defined contribution plans.
The rest have only defined contribution plans, such as profit-sharing plans and 401(k)s.
Defined contribution plans, which are simpler because they spell out only the money going in, are getting more generous, too.
Instead, over 60% of their income is expected to come from defined contribution plans and other savings outside their retirement plan.
FORBES: How You Can Adopt the "7 Habits of Highly Confident Retirees"
Who would have thought that this broad-based attack upon defined contribution plans would follow the well- documented demise of defined benefit plans?
It is indisputable that defined contribution plans substantially underperform defined benefit plans.
FORBES: A Nation on the Precipice: Our Failed Retirement System (October 12, 2007)
Rice has long advocated for increased transparency and lower costs for participants in governmental defined contribution plans which operate similarly to 401(k)s.
FORBES: Time For Workers To Demand The 401(k) Plans They Deserve: Here's A Model
But defined-contribution plans also have a significant foothold in the public sector: most public universities, where faculty have been covered by defined-contribution plans for decades.
The disastrous consequences of including employer stock in defined contribution plans can be seen in the Enron, Worldcom and later U.S. Airways and United bankruptcies.
FORBES: Can You Trust Your Employer's 401(k) Plan? Not If Company Stock Is An Option.
Section 457 deferred compensation plans, like 401(k)s, are defined contribution plans where the employee chooses from a menu of investment options predetermined by his employer.
FORBES: How One Florida County Built A Better 457 Retirement Plan For Its Workers
Is it possible that we, as a nation, now realize that all is not well with the management of our defined benefit and defined contribution plans?
The proportion of private industry employees participating in 401(k)-style defined contribution plans rose from 36% in 1999 to 43% in 2008, according to Investment Company Institute data.
The only hope that defined contribution plans will provide retirement security for participants who increasingly rely almost exclusively upon them, is if these plans are massively improved.
Unfortunately most sponsors of defined contribution plans seem uninformed or unwilling to roll up their sleeves and investigate the implications of the recent mutual fund scandals upon their plans.
Today it is imperative that defined contribution plans operate efficiently and with integrity because for most Americans these plans are all they will have to rely upon in retirement.
The same kinds of defined contribution plans, they figured, could work at larger self-insured employers, even though these big companies and their employees would not get quite the same tax advantages.
The mutual fund and insurance companies that marketed to these plans failed to realize that the products they designed to be sold to defined contribution plans had to meet higher applicable fiduciary standards.
Today the focus is upon sponsors of defined contribution plans that have not diligently fulfilled their fiduciary duties regarding conflicts of interest, excessive costs, abusive practices and investment performance related to management of these plans.
For defined contribution plans (where participants choose among investments), plan sponsors should more carefully scrutinize the intermediaries and managers they entrust with assets, especially now that so many hidden financial arrangements between these parties have surfaced.
When one considers the paltry average amounts that Americans have accumulated in their defined contribution plans, it is absurd to pretend that these funds will provide for more than a year or two of full retirement at best.
FORBES: A Nation on the Precipice: Our Failed Retirement System (October 12, 2007)
In the past large defined contribution plans overseen by unsophisticated employees with other corporate duties, without an investment consultant or investment policy statement to guide them, utilizing well-known mutual fund families exclusively (without competitive bidding), failing to monitor best execution, revenue sharing, securities lending, custody arrangements and other issues, was the norm.
Now that the mutual fund scandals are ancient history and the SEC (speaking on behalf of the mutual fund industry) assures us that the few problems that ever existed in the industry have been eliminated (none of which the SEC uncovered on its own), attention has shifted to abuses involving retirement plans that generally use mutual funds- the defined contribution plans.
With the shift from defined-benefit plans to defined-contribution plans, and the uncertain future of social security, boomers are on their own when it comes to financing retirement.
应用推荐