Employee Rights and Employment Policy Journal

Retirement benefits are increasingly being provided to employees by means of 401(k) plans, in which employees choose to have a portion of their salary deducted and contributed to a plan account, the investment of which is in the hands of the employee. However, ERISA, the federal statute primarily responsible for the regulation of private pension plans, was drafted with a very different model of pension plans in mind. As a result, its provisions are not sufficient to address the problems that exit in 401(k) plans. This article discusses problems created by reliance on 401(k) plans as the primary means of providing retirement income, focusing particularly on participant direction of investments and on the failure of plan participants to roll over their 401(k) account balances when they change jobs. It then suggests ways in which the law could be modified to better ensure that plan participants would retire with meaningful assets. Specifically, it recommends that Congress consider amending ERISA to eliminate participant direction in 401(k) plans in order to subject defined contribution investment decisions to the prudence and diversification standards of the statute as well as to the statute's limits on the acquisition of employer securities, none of which apply to plans in which participants direct investments. It also recommends that further investigation be undertaken to determine whether participants who change jobs mid-career should be prevented from taking distributions of their 401(k) plan account balance.