The guys who told everyone to start using 401(k) plans now have regrets

Herbert Whitehouse and other early 401(k) advocates are having second thoughts

By Matthew Rozsa

Staff Writer

Published January 4, 2017 2:08PM (EST)


Herbert Whitehouse, the former Johnson & Johnson human resources executive who was at the forefront of advocating that American workers switch from company pensions to 401(k) plans, is now expressing regret over his position.

"We weren't social visionaires," Whitehouse explained in an interview with The Wall Street Journal on Monday. Like many other early advocates of 401(k) plans — Whitehouse started doing this in 1981 — he didn't anticipate the tax-deferred savings tool would be used as a replacement for pensions by employers seeking to cut expenses. As a result, only 13 percent of all private-sector workers have a traditional pension in 2016, as opposed to 38 percent in 1979.

"The great lie is that the 401(k) was capable of replacing the old system of pensions," said Gerald Facciani, former head of the American Society of Pension Actuaries and an opponent of an effort by President Ronald Reagan to kill 401(k) plans, in his interview with The Wall Street Journal. "It was oversold."

"There was a complete overreaction of excitement and wow," said Kevin Crain, who as an executive at Fidelity Investments in the 1990s received complaints funds underperforming the S&P 500, in his interview with The Wall Street Journal. "People were thinking: Forget that boring pension plan."

A 401(k) retirement plan is a defined contribution retirement plan that allows employers to ask their workers how much they want to contribute. Once they decide, the employers put the money into an individual account on their workers' behalf. The amount is then deducted from the employee's paycheck, although the loss of income is somewhat offset by tax benefits. The employer then sends the payroll deductions to the company managing their workers' 401(k) plans, although the workers are required to choose how to invest their money among the options offered by their plans.

By Matthew Rozsa

Matthew Rozsa is a staff writer at Salon. He received a Master's Degree in History from Rutgers-Newark in 2012 and was awarded a science journalism fellowship from the Metcalf Institute in 2022.

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401k Herbert Whitehouse Pensions Retirement