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>> Given the state of a lot of companies/governments and their un/derfunded pension liabilities, while a lot of the people who have pensions may be under the illusion that they can sleep better, they probably shouldn't be. <<

I highly doubt that anyone with a government pension will lose anything, especially at the state and federal level. Perhaps the pensions will become frozen, and perhaps they have to stop adding new employees to the defined benefit plan, but governments have something private businesses don't: the power to raise taxes to fund the pension. Private industry can't just raise prices in the face of competition to shore up the pension funds.

I can see a few cities "going Vallejo" in this market cycle, though.

>> The 401(k) was an attempt to build portable pensions that people can carry with them from job to job. What fails is that they are voluntary, so people have to take some responsibility on their own. And even with the new automatic enrollment rules, employees can choose to opt out. So people can choose to not participate, and then become sob stories for articles like this one. <<

Yes, there are three problems with the 401K as I see it: one is, as you said, it's voluntary, so if people don't realize in their 20s and 30s -- the best time to invest for retirement growth -- that they need to feed the kitty, they risk having little or nothing to retire on and have to play a furious "catchup" game.

Another problem is that workers are least likely to be able to afford to contribute a lot of cash to their plans when it would be of maximum benefit for them to do so: while they are young.

The other problem is inappropriate investment mix. If a 60-year-old had 100% of his/her 401K in stock mutual funds and they were planning on depending on it for retirement income, they took too many risks and sabotaged their retirement. The flip side of that is (say) someone who is 25 or 30 and is being scared off of the stock market long term. These people will have mostly cash and bonds at a time when they should be taking more risk and buying more stock with each pay period to take advantage of today's low stock prices.

So really, the 401K investor is more prone to self-destruction of wealth through those two wealth-killing emotions, fear and greed. Pension fund managers don't really deal with this because they tend to keep an overall asset mix appropriate for both the 20-somethings and retirees pooled together in the fund.

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