Yesterday Explains Today's 401(k)

To understand today you have you know about yesterday. When 401(k) plans were introduced in the early and mid 80s, American employers were in the process of laying off millions of workers in their late 40s and 50s. Distrust of employers was at an all-time high. To overcome this, 401(k) plans were designed so that participants had control, and their money was invested in mutual funds so that participants could see in the newspaper that the funds were real and they could verify how they were doing independently of their employers reporting. This was followed by the go-go nineties, when the number-one complaint about an employer's plan was that it had too few choices and major periodicals were evaluating plans based on the number of choices and complimenting those with the most.

This mindset changed with the shocks of the 2000-2002 period and most participants today trust their employers more than others and now look to employer selected solutions to help with their asset allocation and even the decision about how much to save. Simpler is becoming more available and within a short time virtually all participants wanting their employer to make these decisions will have that option, either passively or actively. At the same time most plans will continue to have choices beyond what is employer directed for the minority who want them. Employers want plans that satisfy every employee and for most plans this will continue to require options. FYI the availability of brokerage accounts continues to grow slowly according to PSCA survey data.

It is rarely recognized, but one of the great attributes of the 401(k) system is its flexibility and capacity for innovation.