We all love money and we all want to retire from our 9 to 5 jobs at some point, there is no argument about it [Except minions, they love bananas!]. So at the end of this article, you will know a quick history of the US retirement benefit system and what the future holds.
The first pension plan started, before George Washington become cool, in 1875 by the American express company. A pension plan was best, let an “expert” handle my money, I get a fixed amount every month when I have retired [Devils in the details, keep it high!!].
Plan sponsored by an employer, hence it is tied to an employer and as an individual, you have no say in the investment choices. [I don’t care, dude, as long as I get my monthly checks]
Greed is a legitimate vice and possess by the best of us to some extent. The company can fire you, fund manager embezzling money wasn’t a new thing, company cooking their books [best liability to mismanage is the pension fund until you get caught!], etc. There was little to no protection for pensions, till 1974. In 1974, congress passed the Employee Retirement Income Security Act (ERISA), Thanks to this homie Late Senator Jacob Javits.
For companies, with the government protection laws, Pension funds are really becoming a liability [Too much risk, who wants that headache!]
After the 1978 revenue act was passed, “Papa 401K” Ted Benna establish the first 401K plan for Johnson company. A 401K plan is the best solution to the liability issue of pension plans. It is no longer on the company’s balance sheet.
Plan sponsored by an employer, hence it is tied to an employer but risk and reward are employees’ responsibility and the company simply administers the plan [They outsource the administration part too, btw]. As an individual, you have limited investment options in the plan [usually 15–20 mutual funds].
401K plan worked well in the past. Tell me, how many jobs, your parents have in their entire careers vs how many you have so far? [My dad had one job in his 34 years of career and I am on my 5th job in my 7 years of “career”]. Millennials change on average 12 jobs in their career [commitment is the biggest problem of the 21st-century, bigger than climate change. Here, I said it!] and the 401K roll-over process is a mess, a $1.35 Trillion mess! It cost employers around $700M every year to administer old 401K accounts (use it for climate change!)
FYI, We can help you find your old 401K money, shoot us an email at email@example.com
Portable Plans: [Not good with names]
There is a need for a retirement plan that is tied to the individual and not to the employer. A retirement account that follows you, wherever you go in this beautiful world! (Watch this ad, you won’t regret it!)
There is a fundamental shift happening in the nature of employment, people change jobs more often, people have multiple jobs [if the US president tweet this, we know we are in bad shape. Who can afford to have one job?], and the explosion of the gig & influencer economy.
We are in an era where the employer-employee kind of relationship is vanishing. Talented folks want flexibility in their work — what to work on, who to work for, and when to work, and companies need to have benefits that provide flexibility to attract those talents.
There are industry & regulatory changes that need to happen to realize this vision. PRIA Act 2021 is a great step in that direction.
If you think this is an interesting problem to solve, say Hi to Beevav. It means the world to us and puts a smile on our faces! 🙂