@ Ara -
401(k) plans can be incredibly beneficial for the employee, I wouldn't paint them with so wide a brush. The benefit to the employee really depends on how the plan is administered, and the matching contribution level of the company. I'll use mine as an example: Our 401(k) plan is an "opt-out" plan. Upon employment, employees are automatically enrolled in the plan, and an investment selection is made for them. They have to fill out paperwork to stop participating in the plan. We have found we get a much larger percentage of employee participation (currently 100%) in the plan if employees actually have to make an effort to get out of it.
My company also matches 100% of every dollar for the first three percent of wages, and 50% of each dollar for the next two percent. So in practical effect, if an employee contributes 5% of their compensation, we match 4% of compensation, for a total of 9% contributed to the 401(k). In other words, they make an instant 80% increase on their invested dollar if they put in 5% of their income.
Finally, we have zero-time vesting on the company match portion. Once we make the match (and we do it every pay period, not at the end of the year when a lot of companies do), the employee is entitled to 100% of the match no matter the length of employment. Many companies have a vesting schedule that gives employees an annual 20% vesting of the company match so in order to get the full match, an employee would need to stay with the company for 5 years.
We also have the mix of investment funds reviewed and adjusted every year by a fee-for-service investment adviser.
That said, even with all of that, an employee should really be stashing as much money as they can into the 401(k), not just the 5% they need to contribute in order to get the maximum match from the company. I understand there are few employees who can put away the kind of cash allowed under the 2014 max of $55K combined contribution and company match limit. However, in our particular situation, a 15% contribution by an employee would net them 19% of compensation (almost a 27% return on their investment). That is before an average 8% return on the actual funds kicks in. In this case, a person making $60K a year who contributes $9K (15%) would see, on average, a balance of $12,120 at the end of the year. And then the lovely magic of compounding kicks in.
Under the above scenario, an employee, 30 years of age, contributing 15% of income with a rate of return of 8%, and a mere 3% COLA adjustment every year to salary, will retire at the age of 65 with $2.8 million. A 10% contribution will net them just a little over $2 million, and just the 5% contribution to get the max match will get them $1.3 million.
So really, it does depend on the administration of the plan, and the participation of the employee. Not everybody is a victim...
Correction Mr. President, I DID build this, and please give Lurker a hug, we wouldn't want to damage his self-esteem.