The way 401k retirement accounts are set up in the US, you can't get anywhere near the contribution limit on your own, you have to have huge amounts of employer contribution, beyond simple matching, even. It's like (cough) it's designed to mainly benefit top-tier professional class folks and non-owning-class upper managers while chaining people to traditional employment or complex personal tax arrangements. The other tax-advantaged account, the IRA, has a much lower total contribution cap.

[EDIT] to be clear it's not an absolute disadvantage to the poor and middle class versus having no such system, it's just that the way it's structured the overwhelming bulk of the tax savings goes to people who are already very well off, and those "beneath" them cannot possibly, no matter how frugal or responsible or fairly-well (but not excellently) compensated, hope to touch the level of benefit the very-well-off derive from 401k accounts. It's impossible, thanks to the way they're structured.

[EDIT EDIT] they're actually ideal for rich people who want to transfer ~$56k/yr to each of their kids (about $1.5m over 30 years), tax-free. I'd bet there's a further scheme one can work out to direct the investment of the fund such that the personal benefit is much greater than that, even (oh, kid of mine, you want to start a business? Funny, our 401k fund also "wants" to invest in it!). How? Employ them at one of your C or S corps (LLC or partnership won't let you get anywhere near the contribution limit, because... reasons? I dunno, it's a really dumb system if [cough] you're trying to make it broadly available to and useful for normal people) in one of the many positions near the top that're well-compensated but are so easy that lots of folks (stalk some from-money C-suite or "investor" types on Linkedin to see what I mean) seem to find time to hold one of them and also a few other "jobs" at the same time, so it won't look out-of-the-ordinary.

>you can't get anywhere near the contribution limit on your own,

That really seems like an overstatement. 401k contribution limits (without catch-up) are about $20K/year. That's no doubt more than most people save in a year but it's not that far out on the fringes of what mid-career professionals are/should be saving for retirement.

I don't completely disagree with your broader point. 401ks (especially with significant contribution match) and IRAs (and ESPPs such as they still are) do tend to most benefit workers who are fairly well-compensated. But they're actually less of a big deal for top execs etc. for whom the dollar amounts are relatively small.

> 401k contribution limits (without catch-up) are about $20K/year.

The GP may be referring to the $57K limit which is the total employee + employer contribution. The $20K/year limit is salary contributions. I think there's also a backdoor that lets the employee contribute more, but the real limit is $57K.

> But they're actually less of a big deal for top execs etc. for whom the dollar amounts are relatively small.

Indeed, few highly compensated execs rely on 401K. They cannot even get tax benefits for IRA's. The 401K and IRAs are designed for the middle class. The main problem is that you need an employer who provides a 401K. If my employer doesn't, I can't go and get one on my own (correct me if I'm wrong). On top of that, you are constrained by the funds provided by your employer's choice of 401K provider (e.g. may only have access to high fund fees).

>there's also a backdoor that lets the employee contribute more

I'm not sure about backdoors but there is a catchup contribution if you're 50 or over that lets you contribute about another $6K.

401Ks are really this weird little quirk in US tax law that, as I understand the history, came about almost by accident. And they're suboptimal in a lot of ways. Of course, they're now so entrenched as a middle class benefit that it would be political suicide to touch them.

Defined benefit plans would be better for a lot of people although they have their own issues--including underfunding and, at least historically, a very strong bias towards long-term employment at a single company.

> Defined benefit plans would be better for a lot of people although they have their own issues--including underfunding and, at least historically, a very strong bias towards long-term employment at a single company.

I came to the opposite conclusion: Defined benefit plans tend to be suboptimal. As you mention, underfunding is a problem. In the private sector what protections are there if the fund goes bankrupt because they overpromised? The safe thing is to make the defined benefits smaller so the account is always funded, but that's leaving money on the table. At least with my 401K (with decent low cost fund choices), I never have to worry about this. The money is mine and it cannot go bankrupt (unless the market dies, of course).

My state's employee pension is a defined benefit pension and everyone who is not a state employee agrees that we're heading for disaster. There's no bankruptcy escape clause - the Supreme Court has ruled that what has been promised must be paid out - even if it means raising everyone's taxes or shutting down all non-essential services. The fund doesn't have enough to pay what's been promised, so the state keeps borrowing money to pay existing pensioners. All the mayors in the city hate it, because pretty much any time they get extra money (via taxes, etc) almost all the money must be diverted to pay the existing pensions. Some smaller towns have increased in population quite a bit in the last decade, yet the cities cannot afford to increase the capacity of schools or increase police/fire presence because all the extra tax money from the new residents needs to be diverted to the pension funds.

Also, there is no cap to the benefit - and it is based on your income while you worked. So we have one retired person getting paid $80K/month from the pension because he was the president of a state university.

It's gotten to the point where many people automatically vote against any increase in funding in, say, schools etc because they know the money will simply be diverted to pay pensions. So legislators try playing games by adding riders to bills that say "None of the extra money raised by this bill can be used for pensions" - but of course that doesn't work because they simply shift the money from elsewhere.

For private pensions, there's the Pension Benefit Guaranty Corporation which is doubtless not perfect but makes things not entirely at the whim of the original company that created the pension.

Certainly public pensions in particular have been a big issue because of overpromising and underfunding. But, from the perspective of the worker, they do provide a level of (mostly) guaranteed retirement payments that lots of people end up not getting through a 401K. Sure, we can take the attitude as a society that's not our problem but it sort of is.

Personally I will have a somewhat nominal pension through a private employer in addition to savings but I understand why we may issues down the road where many people have nothing besides Social Security as opposed to more common defined benefit pensions as in times past.

Opening up the full contribution level for all employees and the self-employed, and simply mandating minimums of employer contribution (to keep them from withdrawing their contributions with this change and not simply adding it on to employee income, pocketing it instead, to avoid disrupting anyone's current retirement benefit) would do a lot to help. Though yeah, touching them in any way will be painted as "trying to take away your retirement", even if it's exactly the opposite.

The total contribution limit is ~$56k/yr. $19k is the limit on what you, the employee (or LLC owner or partnership member) can contribute, which is exactly what I'm talking about—most of the money has to come from your employer if you want the maximum possible benefit. It's pretty rad if your "employer" is your (or your rich parents') C corp, or you're an owning member of an S corp that's rolling in money, though.

There are also costs and various rules associated with administering 401k plans. I'm not an accountant or financial advisor so I'm not sure how effective using these sort of arrangements would be. (Of course, lots of money opens up a wide range of tax minimization and savings strategies.)

My point is basically that at minimum 50% of the taxes foregone to support the 401k system[SEE EDIT] is going to people who definitely would have had an awesome—not just OK, not good, awesome—retirement no matter what. Not the poor or middle class. Functionally no-one in the middle class is getting five figures of contributed funds per year from their employer, let alone the ~$36k it'd take to max it out. Who are? Top-end professionals who can be self-employed in such a fashion that they own their "employer" (and again, LLC or partnership won't cut it, because reasons) and very well compensated corporate folks (chiefly management-tier). Plus family of rich people who're just (legally, but clearly via Some Real Bullshit) dodging taxes.

[EDIT] OK so 50% is not necessarily right, obvious, I realized as soon as I posted, but the benefits are very disproportionately in the favor of people who aren't exactly the ones one might hope a government-supported retirement system would be mainly designed to help, and the best possible benefits aren't practically available at all to middle-class people even if they do somehow manage to put the actual total contribution limit away for retirement (they'll lose out on probably at least half the max benefit of the system, since they can only put ~$19k or $20k in tax-free themselves and probably only get low-thousands contribution from their employer at best, so the rest is getting taxed before being invested, and IIRC you can't even stack an IRA on top of a maxed-out 401k contribution)

I still don't see your point.

A poor person can put 100% of their wealth in. Someone who's well off can't.

I think you're just saying that a poor person has less money than a rich person.

Of course they do - that's what the words mean!