plans. 74 Employees and employers pay into pension plans and employees are guaranteed the
payment of a fixed sum determined by the amount of contributions and the length of the
employee’s service. 75 Today, most people participate in defined contribution plans like 401(k)s, 76
which place most of the contribution burden on employees, though employers usually contribute
a percentage to the fund. 77 The payout upon retirement depends largely on how the plans perform
in the market during an employee’s years in the workforce. 78 The employee bears the risk of loss
on the market. 79 Consequently, “[n]ot only must individuals take greater charge of their financial
well-being once they retire, but they must also forecast future financial needs, navigate
increasingly complex financial markets and manage risk, both during and after their working
years.” 80 During The Great Recession this set up resulted in a significant loss of retirement
money for many individuals. 81
Furthermore, the range of financial products available since the 1980s has increased and
become far more complex with the change in America’s financial landscape. 82 Instead of a
traditional thirty-year fixed rate mortgage, a borrower can enter into an adjustable rate mortgage,
a balloon mortgage, an interest only mortgage, or a reverse mortgage. 83 In fact, for millions of
74 Kandice A. Kapinos, Changes in Firm Pension Policy: Trends Away From Traditional Defined Benefit Plans 2, 6 (Ctr. for
Retirement Research at Boston College, Working Paper No. 2011-6, 2011).
75 BLACK’S LAW DICTIONARY 531 (3d Pocket ed. 2006).
76 Merriam Wesbter’s Dictionary defines a “401(k)” as “a method by which the workers in a company can save money for their
retirement by having an amount of money saved from their paychecks over a long period of time.” 401(k), MERRIAM-WEBSTER,
http://www.merriam-webster.com/dictionary/401(k), (last visited Nov. 10, 2013).
77 See generally Leslie E. Papke, Are 401(k) Plans Replacing Other Employer-Provided Pensions? Evidence from Panel Data, 34 J.
HUM. RESOURCES 346 (1999) (discussing the trend towards 401(k) plans); Leslie E. Papke et al., Do 401(k) Plans Replace Other
Employer Provided Pensions?, ADVANCES ECONS. AGING 219, 219 (1996).
78 Olivia S. Mitchell & Sylvester J. Schieber, Defined Contribution Pensions: New Opportunities, New Risks, in LIVING WITH
DEFINED CONTRIBUTION PENSIONS 4, 9-11 (Olivia S. Mitchell & Sylvester J. Schieber eds., 1998).
79 Id. at 11.
80 FINRA INVESTOR EDUC. FOUND., supra note 12, at 4.
81 Barbara A. Butrica & Karen E. Smith, 401(k) Participant Behaviors in a Volatile Economy 1 (Ctr. for Retirement Research at
Boston College, Working Paper No. 2012-24, 2012) (“Retirement account balances (defined contribution plans and IRAs) peaked at
$8.7 trillion in the third quarter of 2007 before plummeting $2.7 trillion ( 31 percent) through the first quarter of 2009 as the stock
market crashed. Although retirement account balances have now recovered much of their value, they would have been significantly
higher had the market not crashed and instead continued on its pre-crash path.”); see also Peter J. Brady, What Does the Market Crash
Mean for the Ability of 401(k) Plans to Provide Retirement Income?, 62 NAT’L TAX J. 455, 455-76 (2009) (analyzing the impact of the
market crash on the availability of retirement benefits).
82 See Harnisch, supra note 28, at 5, 8-9 (listing several ways the financial landscape has changed since the 1980s); FINRA INVESTOR
EDUC. FOUND., supra note 12, at 4 (discussing the growing complexity of the financial decisions Americans face).
83 Common Types of Home Mortgages, USA.GOV,
http://www.usa.gov/topics/family/homeowners/buyingselling/mortgages/types.shtml (last updated Oct. 18, 2013).