One of problems of 401k

A lot of companies are finding ways to cut pensions; a lot of companies are also planning to stop offering pensions to employees. They often offer 401k to employees, but there is a problem in the current scheme of 401k, and it is one of problems that exist in the financial sector today; if you study, then you can understand, but mechanisms are complex, and thus, problems in the financial sector hurts many of those who trust 401k.

When the company trades its stocks in stock market, the company often sets up its default 401k so that employees actually buy the company stocks while they contribute to 401k. Employees can (and should) change their 401k plans so that their plans are much more diversified, but since a lot of companies' 401k default plans directly contribute to those companies, many employees just set up their 401k plans like that. I'd risk saying that investing in a single stock (company) is a losing proposition. There are always exceptions, but generally speaking, you cannot win in a long term. However, 401k is something that you need to win in a long term because it will be your retirement fund.

The reason why companies want their employees to invest in their companies through 401k is very simple. They want more money; it cannot be explained any simpler than that. However, as I already mentioned, investing in a single stock (company) is a losing proposition while many are following the proposition. Enron is a prime example. Employees had 401k plans, but the default plan invested in Enron; the company went bankrupt and its stock became worth nothing. At that moment did 401k plan, which was supposed to be a retirement fund, a replacement of pension, become worthless. Enron will not be the last.