InvestorQ : What are the key challenges faced by 401K plan?
shrinidhi Rajan made post

What are the key challenges faced by 401K plan?

Answer
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Riya Dwivedi answered.
12 months ago


Just like any other plan, the benefit comes with some drawbacks, and this one has some limitations too:

This plan is not a guaranteed plan, as the pension under this plan is dependent on the amount of cash in the fund at the time of employee’s retirement.
Since this plan is a defined contribution plan, therefore the onus of bearing the risk of investment is on employee entirely, quite often employees are not prepared for the same and this ultimately becomes a reason for their disappointment.
Liquidity is one of the biggest challenges in 401K plans. One cannot rely on this corpus for emergency fund requirement and hence one has to arrange for the same separately.

The 401K plan may be left with big shortfalls because a major portion of the corpus is still in debt and bond yields have been falling since 2008. Therefore, not all glitter is gold and hence not every plan has just benefits.