03/12/2013 09:08 pm ET Updated May 12, 2013

Is 401(k) Good for America?

"Running on Empty. Running into the sun but I'm running behind." -- Jackson Browne

Internal Revenue Code section 401(k) is the only section of the U.S. tax code that the average people can cite. They know it has something, and often everything, to do with whether or not they can retire with dignity.

The adoption of section 401(k) in 1982 turned out to be one of those big moments that changed everything.

401(k) plan investments are a primary driver of the investment markets. It is the employee retirement benefit that most companies offer.

These plan investments are also the reason that many people are pacing the floors at night, watching their retirement get delayed or destroyed.

Until 401(k) came along, pension plans were usually defined benefit plans.

A defined benefit pension is one that gives you a set number of dollars for set period of time. It usually pays out over the course of your lifetime after retirement.

With a defined benefit plan, the employer takes responsibility for making sure pension money is safe and properly invested.

State and local governments are about the only entities that currently offer defined benefit plans. Most, like my home state of Kentucky, are struggling to figure out how to pay for promises to current retirees by politicians from long ago.

As a financial consultant, I advise anyone who can get a defined benefit plan to maximize it. As a taxpayer, I don't want to pay for my neighbor to retire at age 50, when that is not an option for me.

With the advent of the 401(k), employees with little or no investment experience were required to pick among investment options offered by an employer.

Employees were put in the position to fail. Many have.

It is up to the employer to pick what investment company handles the employee's money. If the employer picks a dog, with few options, the employee is out of luck.

Even worse, many companies push their employees to use 401(k) money to buy stock in the company they work for.

If the company goes broke, people lose their jobs and their retirement savings, too.

There is a second major problem -- not putting enough money in the 401(k) to begin with.

401(k) plans give people too much freedom.

I've always encouraged people to put the maximum amount into a 401(k) plan. Few do. Many put in little or nothing at all.

Now they are looking at a bleak retirement. Or no retirement at all.

Defined benefit plans encouraged people to stay at the same company. 401(k) plans do not.

I've watched tons of people change jobs and then blow the 401(k) money before they started their new job.

Over 70 percent of people with a lump sum of money will run through it in five years or less. The same statistic holds true for 401(k) rollovers as it does for lottery winners.

Two things should be done to help people retire.

One would be to make it easy, and cost efficient, for employers to go to defined benefit plan and guaranteed income plans. That would make sure that our retirees have money for the rest of their lives.

Second would be to change the way 401(k) plans are administered. Take them out of the employer's hands and let employees invest in whatever, and with whomever, they like. Just like they do with their IRA accounts.

When historians study the cause of the 2008 economic meltdown, they will see that the change from defined benefit plans to 401(k) plans in 1982 was a factor. It was one of many shifts where dramatic changes were made in people's lives and liberties. People didn't realize just how dramatic until years later.

If we are going to keep from running behind, 401(k) is one of those things that we need to fix.

Don McNay is the head of McNay Consulting LLC and the best selling author of Life Lessons from the Lottery. His next book, Life Lessons From the Golf Course, co-authored with PGA professional Clay Hamrick, will debut on April 9.