Blaming the Victims of the 401(k) Crisis

04/20/2015 05:16 pm ET | Updated Jun 20, 2015

As an author and speaker about 401(k)s and the retirement crisis, I often receive letters from readers who are relieved to find out that it wasn't their fault that they came up short with these plans.

One reader wrote: "I read your book some months ago, and I felt so validated. Up until then, I didn't really know what went wrong with my retirement plans and assumed that it was somehow my fault although I have always been a saver and had put in an extra $100/month to my 403(b) as long as I was a full-time employee. [403(b)s supplement 401(k), sharing the same stock market investing approach to retirement savings.]

"It meant a lot to me to know that my predicament was not just the result of poor planning on my part. When I run into former colleagues who also retired, I find that they are in the same boat. One has gone back to work full-time and another, a good bit older than me, is working two jobs."

Another 401(k) retiree wrote of having felt guilty about having to get support from her adult children. She and her children had assumed that the blame was hers for coming up short and needing help.

The financial services industry, which profits handsomely from managing 401(k) and similar accounts, encourages victim self-blaming. What better way to deflect criticism from itself for running a rigged game?

The game rigging starts with the false claim that any responsible person can save enough through these accounts to finance a comfortable retirement.

There's no agreement among retirement planners as to how much is needed from savings to maintain a preretirement standard of living after leaving work. A conservative estimate is 70 percent. That is, all sources of retirement income, including Social Security, should add up to at least 70 percent of what one was earning right before leaving work at the highest earning point of a career.

How much would one have to regularly save through a 401(k) to meet that goal? Companies that manage 401(k)s provide various estimates ranging between 10 and 15 percent of income. But the average employer match is just 4 percent, indicating that most don't save more than 8 percent.

But even those who save at 10, 15, or higher rates find that it is not enough.

I was in a plan for over 30 years with a combined employer-employee contribution of 13 percent. For a number of those years I put in an additional 16 percent for a total of 29 percent. That put my savings rate way above the average. That should have ensured a very comfortable retirement. In fact, at age 65 combined with projected Social Security income, I only had enough to replace 48 percent of my income.

I estimate that one would have to regularly save 25 to 30 percent for close to 40 years to meet the 70 percent replacement goal. How realistic is that for anyone with normal expenses of mortgage payments, college debt of their own and contributions for their children, etc.? Not very.

The unrealistic savings rate required is so high in large part because participants are contributing not only to their future retirement security but also to the profits of the companies that administer and receive the investments of the plans. Minimally, participants lose 20 percent of investment gains to often hidden administrative charges.

What are especially insidious about this rigged financial game are deceptive appeals to individual responsibility. These are built on the false claim that it is possible to save enough. If you don't, it is strongly implied, it's your own fault and no one will or should help you.

It is different with traditional pension plans and Social Security. Since they are held in common -- not individually -- by groups of employees, they engender an ethic of working together. When facing threats to their retirement security, these type of plan member are more likely than 401(k) members to resist together.

Detroit public employees pension plan members took a haircut as a result of the recent bankruptcy. But it was much less of a haircut than originally threatened because they resisted collectively through their unions and won a less bad result. At the same time that Detroit workers were fighting together to save their earned pension benefits, other workers were retiring and finding out that their 401(k)s were worth little. They were on their own with no one to help.

None of these 401(k) victims should compound the damage by blaming themselves. They should instead direct their ire at the system that puts them in this predicament.