Found in a recent Investment News magazine was an article titled "Young workers want sure things as 401(k) options".    Don't we all? 

The article referred to employees in their 20's, fearing market volatility, wishing to have a "sure thing" - i.e. a guaranteed income fund choice in their 401(k) plan.

Hopefully you see where I am going with this.  The only "sure thing" about these funds is that they guarantee that account holders will have less in retirement.

The aspect of this that is so incredibly disappointing is that it is difficult to convince 20-somethings to save in their 401(k) in the first place..

..and now some of them are doing so - but not enjoying the higher compounding rates that stocks offer.   It is a tragedy.

You see, growth in the stock market comes with volatility.   Volatility is part of growing wealth faster than the rate of inflation with stocks.  Yes, it's uncomfortable at times - so is exercise and going to the dentist, but you understand you must do it for health.

The people selling these ill-advised funds attempt to position them as an alternative "asset class".   Plan sponsors, I assume, go along because they have something to offer frightened employees when the market drops.  Anything that keep the natives calm is a good thing, right?

I believe guaranteed income funds should be outlawed in 401(k) plans.  Yes, you significantly reduce volatility but at the price of returns.  The purpose of a 401(k) is to invest and grow - not be a bank savings account.

If I were a plan sponsor of a plan with a guaranteed income fund option - I would be very worried about the long term possibility of lawsuits.

It's one thing for a participant to make a poor choice by allocating their funds in a less than favorable allocation.  But to give the participant an option that guarantees a much smaller long term return is wrong. 

Another troubling aspect of this article is the knowledge level of 20-somethings - fault the schools, fault the 401(k) providers - but this is very troubling and sad.  

It is a beautiful thing when a 20 year old socks away money in their 401(k).  THE YEARS THEY HAVE FOR COMPOUNDING. AWESOME!  They have the time to weather the volatility and enjoy the long term returns of a 100% stock portfolio.  It's a crime and a shame for those dollars to be placed in a guaranteed income fund.   They've done the right thing and sacrificed to save and then are not going to enjoy the benefits.