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...idea that we could ever save enough to pay for 30 years of leisure is a relatively recent invention. An entire profession, financial planning, is dedicated to telling people they can, and must, pay for their own retirement. A 401(k) is usually a central part of those plans. Even for people who don't have enough money to send their kids to college or buy a home, building their 401(k), they are told, is their first priority. It's not terrible advice. The accounts grow tax-free, though you have to pay Uncle Sam's levy when...
...Brief History of the 401(k) Congress was trying to close a loophole on executive bonuses when it created the 401(k). Most companies intended 401(k)s - which were originally called salary-reduction plans but then renamed for the portion of the tax code that makes them possible - to be a perk for highly paid executives, not a pension replacement. That's because lower-paid employees probably could not afford to defer a portion of their paychecks. So companies held on to their pension systems even as they added 401(k)s, which by law they had to make...
...With a 401(k), contributions came out of your pay but were not taxed, and you had control of them. Contributions could be added or suspended. Best of all, when you left your company, your 401(k) traveled with you, removing a penalty for switching jobs that had been built into the pension system. On the corporate end, a change in accounting rules made the growing cost of pensions more apparent to shareholders. Cutting the pension was a guaranteed way to improve the bottom line. The rise of the 401(k) began...
...bond-heavy pension fund - so much so that Oxy's accountants figured the plan was overfunded by $600 million. For Oxy to get at that cash, pension laws required it to close its fund and start again. It did so with a far cheaper option: the employee-funded 401(k). The company made it clear that with the high interest rates at the time, Oxy employees could see their 401(k) account balances soar with little risk. Few doubted it - Oxy, like most other big companies of that era, had always taken care...
...first, Occidental's union workers were not allowed into the plan. So when Ernie Lucantonio was offered a supervisor job in the fire-retardant division at Occidental, part of the reason he took it was to get into the 401(k). "The 401(k) forced you to save money, because you couldn't touch it," says Lucantonio. "I was making good money, but I wasn't saving anything. I had three kids going to college. So the 401(k) forced me to save, which I needed." (See pictures of the college dorm's evolution...