401(k)s and Similar Plans

Many employers now offer 401(k) savings plans to their workers. In these plans, workers each have their own individual account that is funded with voluntary contributions from their paychecks. Many employers make partial contributions that typically match only part of what a worker has put into the plan. Plans are set up so workers get to choose how to allocate their money among different investment choices. Benefits are a function of contributions into an account and investment earnings and losses.

Employers have shifted away from pensions and to 401(k)-type plans because of certain advantages they offer employers. With a 401(k), individual workers are responsible for deciding how to invest their retirement money, and investment risks are born solely by the worker. Losses in the plan simply translate into lower benefits for workers. Workers fund much of 401(k) savings themselves through deductions from their paychecks, and many employers make their contributions entirely in company stock, a practice that is of enormous advantage to companies because it requires no cash expenditure and the company gets a tax deduction for it.

Some employers offer 401(k)s as supplements to company pensions. This is important because pensions may not provide enough money by themselves to stand alone on top of Social Security.

The BCTGM Way

The BCTGM bargains with employers for secure retirement savings plans like 401(k)s and work to achieve improvements for workers through legislation. Reforms are needed to give workers a right to sell company stock in their 401(k) and other retirement savings plans within a reasonable period of time and to counteract employers’ efforts to induce workers to invest heavily in company stock. Congress should end employers’ exclusive control over workers’ retirement money by giving workers a voice in how 401(k)s are run, and it should enhance workers’ access to conflict-free investment advice.

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