Baby boomers have been the primary mice used in the great 401(k) retirement experiment. We know precisely the date that the experiment first started. It was 1978 when politicians in Congress decided to reengineer retirement plans for the benefit of workers and passed the 1978 Tax Revenue Act. The date that the experiment will end, however, is less clear. Most likely, it will be sometime around 2030, when the oldest members of the Baby Boomer generation — born during the last days of World War II — turn 85.

There is much evidence that by that time, the results of this experiment will show that many will have benefited from the 401(k) plan. Unfortunately, few of them will be the retirees that relied on this plan for retirement security.

Who are those who benefited? Well, certainly Wall Street and the others who promoted high-fee funds will have come out pretty well.  And let’s not forget about the corporations that got billions of dollars of future liability off the books by shifting the obligations of funding and administering the old defined benefit pensions over to employees with their new 401(k)s.

But what about the plan participants? How well will history say they did?

Traditional defined-benefit pension plans were designed to provide what retirees truly need – a guaranteed income for life.

401k plans were designed solely as a vehicle for accumulating assets. It is the responsibility of the plan participant to figure out how to invest those assets and how to turn it into lifetime income at retirement. The majority of people are not equipped to do a good job at either.

One of my favorite articles on this topic is titled The Crisis in Retirement Planning by Robert C. Merton a recipient of the 1997 Alfred Nobel Memorial Prize in Economic Sciences.

“The language of defined-contribution investment is very different. Most DC schemes are designed and operated as investment accounts, and communication with savers is framed entirely in terms of assets and returns. Asset value is the metric, growth is the priority, and risk is measured by the volatility of asset values. DC plans’ annual statements highlight investment returns and account value. Ask someone what his 401(k) is worth and you’ll hear a cash amount and perhaps a lament about the value lost in the financial crisis.

The trouble is that investment value and asset volatility are simply the wrong measures if your goal is to obtain a particular future income.”

You can read the full article at the Harvard Business Review website.