FOR IMMEDIATE RELEASE:
Thursday, February 7, 2002
Contact:
Nancy Coleman or Karen Conner, (202) 775-8810
PRESS RELEASE
EMPLOYEES WILL BEAR BURDEN OF BUSH 401(k) PROPOSALS
Stronger Reforms Needed to Ensure Safe Retirements, Says New Report
The Bush administration’s proposals for 401(k) reform, defended in Congressional testimony yesterday by Labor Secretary Elaine Chao, are too weak to ensure a secure retirement for the millions of Americans who will be relying on income from 401(k) plans, says a new report from the Economic Policy Institute.
“The fundamental problem with 401(k)s is not a matter of choice, it’s a matter of risk,” said Christian Weller, a co-author of the report. “When the stock market imploded in 2000, trillions of dollars of household assets vanished. We need to take strong action to reduce the risks that workers face in trying to build a safe retirement.”
The paper, No More Enrons: Protecting 401(k) Plans for a Safe Retirement, by Weller and Ross Eisenbrey, warns that the inherent risks in 401(k) plans put employees of many of the nation’s companies at risk of losing the benefits they’re counting on for their retirement.
No More Enrons shows that an average-wage employee contributing 10 percent of her wages to a 401(k) plan from 1980 to 2001 would have lost 94 cents of each dollar contributed if she had invested only in Enron stock. If the same worker had invested the same amount in a diversified portfolio, each dollar contributed would have produced $2.56 at retirement.
To help reduce these and other risks, Weller and Eisenbrey propose four types of reforms in the structure and management of 401(k) plans. They are:
- taking steps to ensure that employees’ stocks are not focused too heavily in one place, a requirement that already applies to conventional fixed benefit pension plans;
- requiring the availability of a full range of secure retirement options, such as investments with a minimum guaranteed rate of return;
- insuring 401(k) plans, just as the Pension Benefit Guarantee Corporation insures defined benefit plans; and
- strengthening other retirement income security programs, such as defined benefit plans and Social Security.
Christian Weller is an economist at the Economic Policy Institute. Ross Eisenbrey is EPI’s director of public policy. The Economic Policy Institute is a non-partisan, non-profit economic think tank founded in 1986. The Institute is located on the web at www.epinet.org.