Negative Side of the 401k Retirement Plan.Background, Literature Review and Legal Case Study (PDF)

Seminar paper from the year 2008 in the subject Business economics - Investment and Finance, grade: 1,0 (A), , course: Current Issues In Human Resources Management, language: English, abstract: The purpose of this paper is to review the often overlooked negative side of the 401(k) retirement plan. Several major drawbacks of the 401(k) such as insufficient investing, poor asset allocation and the detrimental effect of market volatility ever more apparent by current economic conditions are discussed. The still developing legal liability of 401(k) plans and those implications for Human Resource professionals is also presented through a legal case study.
More and more Americans rely more heavily on 401(k) retirement plans with the worsening Social Security situation, the decline of pension plans and the commonly held belief that 401(k)s are the superior choice for an adequate retirement. However this belief is rarely questioned, and even less so in prosperous economic times when the inherent high risk associated with many types of investments in 401(k) plans produce good results. Some financial advisors, economists and even lawmakers though have begun to scrutinize the nearly always positive image of 401(k)s for investing in retirement. It goes without much contention though that part of this new scrutiny is of course motivated by current worsening economic conditions.
Experts point to a myriad of misconceptions and inherent shortcomings in the current 401(k) system. These include unguided and often insufficient investing, hidden and sometimes substantially detrimental plan fees, poor asset allocations on investments, inherent and damaging stock market volatility and more. While most financial planners continue to hold that the 401(k) is an excellent way to invest in one's retirement, some questions are being raised and there is perhaps a growing need for more explanation with that recommendation now.
First background information about the 401(k) retirement plan is presented including its basis in laws related to Human Resources and a brief demonstration of its rise in popularity. Next, the negative side of the 401(k) is presented through a literature review organized by several major bullet points. Lastly, a legal case study is presented to reinforce human resource related employer legal liability followed by the paper's conclusion.