A true pension provides a guaranteed benefit in retirement (regardless of contributions). You get a certain amount of income, no matter what. So it is not based on the amount of contribution, but what you are given in a risk-free manner. That’s what makes it overly expensive and problematic - nothing is truly risk-free and such a generous benefit end up functioning more like a Ponzi scheme.
The issue is that the defined benefit pension was replaced with a 401k, where your retirement income is subject to the vagaries and collusions of the market as well as your own investment choices and skills over time. The 401k just passes the risk from the employer to the employee, but the employee is playing the game at a significant disadvantage. Pension funds can afford to hire full time money managers to play this game, I cannot.
The other problem is that the investment choices in the 401k are extraordinarily limited. You get your choice of - two index funds that track the S&P and R2K, two "actively managed large / small company funds" that really just track the S&P and R2K but with higher fees. You can choose from 10 different target date funds with high fees and low returns. You can choose the company's own stock, if you did not learn the lesson of ENRON. There are also a few "international company funds" and "bond market index funds" and similar that consistently under perform all the other choices.
There's no way to invest in individual stocks other than the employer's stock, sector targeted mutual funds, REITs, SPACs, actual real estate, annuities, non-US companies, precious metals, or numerous other investment vehicles that leave one less exposed than just "Follow the DJIA". You can't even gamble your money away on Crypto.
> where your retirement income is subject to the vagaries and collusions of the market
Isn’t this normal and expected? Pensions are also subject to the same thing since they’re invested in the same stock market, right? It is why most pensions don’t have enough money. You simply can’t make something totally risk free. I think pensions are misleading by offering this guarantee and it always results in the company having difficulties for unrealistic obligations or people not getting their pension that they expected when the company collapses.
> as well as your own investment choices and skills over time
401k plans usually have a default investment suggestion that provides a reasonable place to start. People can choose to stick with those recommendations or not. But the 401k is required by some regulation to make responsible choices as a default strategy. Not all companies have the same flexibility in what you can invest in, but mine have always had low cost funds available. I do agree they should have the ability to freely invest in anything though.
