When the 401(k) was introduced in the late 1970s, it wasn’t meant to replace pensions—it was meant to supplement them. Born out of a little-noticed section of the Revenue Act of 1978 (Section 401(k)), it allowed employees to defer compensation tax-free into a retirement account. The idea was simple: give workers a tax break for saving, and employers a lower-cost benefit option.

The shift began in earnest in the early 1980s, when forward-thinking companies like Johnson & Johnson and PepsiCo adopted the 401(k) as a retirement offering. At first, it was just another perk. But as corporate America looked to cut long-term liabilities, the defined benefit pension plan—where the employer guaranteed retirement income—started to vanish. The 401(k) became the main vehicle for retirement, not a supplement. This marked a massive transformation: the risk of funding and managing retirement shifted from the employer to the employee.

Fast-forward a few decades, and the 401(k) has become the dominant retirement plan in the private sector. But the results have been underwhelming—and, for many, disastrous.

First, the 401(k) assumes individual savers are capable of making consistent, long-term investment decisions. In reality, most people are not trained investors. They panic during downturns, chase hot trends, and often borrow from their accounts or cash out early—actions that dramatically reduce long-term returns.

Second, fees quietly eat into savings. Even seemingly small annual fees—say, 1%—can drain hundreds of thousands of dollars from a nest egg over time. Many workers have no idea what they’re paying, and some plans don’t offer low-cost index funds as options.

Third, participation isn’t guaranteed. Unlike pensions, which were automatic, 401(k) plans require employees to opt in and contribute. Lower-income workers, younger employees burdened with student loans, and those without financial literacy often don’t participate—or contribute too little, too late.

Even among those who do save, the numbers are grim. According to Vanguard’s 2023 report, the average 401(k) balance for those nearing retirement (ages 55-64) was just under $256,000. That might sound like a lot—until you realize it translates into roughly $10,000–$15,000 per year of retirement income, far short of what’s needed to maintain most people’s standard of living.

Ultimately, the 401(k) system puts the burden of retirement onto individuals, many of whom lack the financial knowledge, discipline, or income to make it work. It’s a system built for ideal conditions: uninterrupted careers, rising markets, and strong contributions from both employers and employees. But life rarely follows that script.

The 401(k) was an innovation, not a solution. It was never intended to carry the full weight of retirement security, yet today, for millions of Americans, it does. And it’s proving to be insufficient.

As a nation, we must ask whether it’s time to rethink retirement once again—whether through revitalizing pensions, expanding Social Security, or building a more robust hybrid model that actually delivers on the promise of a secure retirement for all.