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This is a good definition of "pension" and "401k" but it doesn't explain why the former is unsustainable and the latter is sustainable. Why is it sustainable t

by jordanb 12y ago

This is a good definition of "pension" and "401k" but it doesn't explain why the former is unsustainable and the latter is sustainable. Why is it sustainable to shift all the risk of bad investment, mismanagement and unexpected longevity away from institutions and onto individual workers? Are workers in a better position to shoulder those risks than institutions are? Or are they in a better position to minimize the risks? Do they have better access to the investment market or greater ability to choose good and trustworthy managers? Are they in a better position to pool longevity risks?

ohyes 12y ago
The difference is that the 401k the matching contributions go into the employee's fund immediately. The pension is really just a promise of funds in the future. Historically pensions have been: a) reneged on by the employer b) underfunded by the employer It is correct to say that there is no reason a reasonable pension couldn't be just as good as a 401k, but it hasn't played out. The money keeps getting spent twice. I personally think this is nothing short of criminal. Because of the way the 401k works, the money can't be double spent, and you didn't have this problem of the retirement funds 'disappearing'.