401(k) investors sitting tight

It may take more than the worst bear market in 77 years to rattle U.S. retirement-plan investors.

Fidelity Investments, Charles Schwab Corp. and other 401(k) account managers say most clients rode out the worst months of the stock market slump without changing weekly contributions or moving to more conservative money-market or bond funds. At Schwab, the company says less than 1 percent of assets held by 1.4 million retirement customers was shifted in September and October, when the Standard & Poor's 500 Index fell 9 percent and 17 percent, respectively.

The 50 percent drop in the Dow Jones industrial average since its October 2007 peak has exposed the shortcomings of the 401(k) as the nation's primary vehicle for retirement savings. The system, which was examined by a congressional panel Tuesday, leaves workers with limited options and makes them overly dependent on financial markets for their security, critics say.

"These plans were always a weak reed to depend on because so much of the risk falls on the individual," said Alicia Munnell, director of the Center for Retirement Research at Boston College, who testified at the House Education and Labor Committee hearing.

U.S. Rep. George Miller, a California Democrat who led the hearing, has criticized fees charged by 401(k) providers and has proposed that all retirement plans offer low-cost index-fund options.

"For too many Americans, 401(k) plans have become little more than a high-stakes crapshoot," Miller said Tuesday. "We found that Wall Street's guarantees of predictable benefits and peace of mind throughout retirement was nothing more than a hollow promise."

John Bogle, founder of fund manager Vanguard Group, echoed Miller, saying, "the 401(k) plan is an idea whose time has come" yet "our existing defined contribution system is failing investors" because of high fees, low levels of saving, excess flexibility that permits cashing out and too much borrowing and inappropriate asset allocation. Bogle recommended a single defined contribution plan with annuities from low-cost providers. The single system would be overseen by an independent Federal Retirement Board to protect the interests of plan participants, he said.

Richard Thaler, who has studied how investors make decisions, said the inertia seen among 401(k) savers is a powerful force that keeps money flowing even in stressful times, providing some cushion to the market and asset managers. That's because most investors don't have better alternatives.