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Originally Posted by disneysteve
simpletron, thanks for a great post. It supports what I was saying. I also support 401 plans, though I do think they have flaws beyond just the user. A plan that is almost totally dependent on the employee is not a great substitute for a plan that was totally independent of the employee (traditional pension). Many workers, particularly lower income workers, can't afford to contribute enough to build an adequate nest egg. Unlike most of us here, lots of people don't have the investment knowledge to make good and appropriate choices with their money (though a target fund would help with that). Loans should be banned. The penalty for cashing out should be greater to really discourage that. All plans should be required to offer at least the same basic investment options including index funds and target funds.
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DS, I think the bolded part is what's really at the heart of the retirement-savings problem. I actually work with designing retirement plans on a day-to-day basis, and many of our clients are basically over-compensating in their attempt to move away from the high costs of "traditional" pension benefits ... which is driving the 401k movement. Features like automatic-enrollment and automatic-contribution-increases go a long way in 401k participation. However, there's going to have to be some policy changes from our legislators if the average person is going to have a fighting chance (the issue you bring up often about the 5k limit on IRAs is a perfect example).
That said, we are starting to see some "hybrid" retirement plans coming around where employees and employers share the burden of savings (the DB(k) plan is literally a mix between a pension & 401k). Unfortunately, most of these plans have unnecessary policy restrictions and are only being used for Highly-Compensated Employees right now. They're not going to take off like they should unless they get more support from the media and legislators.