This professor says it's time to kill your 401(k)

Experts, including some pioneers of the 401(k) savings plans, worry that the current retirement system is not working for many Americans.

More than half of workers — roughly 55 million — don't have access to a retirement plan on the job and 29 percent of households with members age 55 and older don't have a nest egg or a traditional pension plan.

Perhaps a guaranteed mandate would work better, according to an odd couple of retirement system reformers.

Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School, and Hamilton "Tony" James, president and chief operating officer of asset manager Blackstone Group, have proposed replacing 401(k) plans with a guaranteed retirement account run by the federal government and managed by investment firms.

Ghilarducci said she has shared their proposal with officials from President-elect Donald Trump's transaction team and said she thinks the plan offers a public-private solution that could gain bipartisan support.

"The number one priority for many of Trump's voters is retirement security," Ghilarducci said. "This could be a Nixon-goes-to-China moment for Trump."

"This could be a Nixon-goes-to-China moment for Trump." -Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School

How the accounts would work

In guaranteed retirement accounts, every employee would contribute a mandatory 2.5 percent of their salary and employers would pay another 2.5 percent of a worker's earnings. (This is on top of the combined 15.3 percent of wages workers and their employers contribute to payroll taxes to fund Social Security and Medicare.)

The accounts, which would guarantee at least a 2 percent annual return regardless of market conditions, would be controlled by the Social Security Administration and the contributions would be invested by managers selected by the federal government.

Ghilarducci estimates that the average 401(k) investor receives an annual return of less than 4 percent while people in guaranteed retirement accounts could generate an average 6 percent annual return with professional investment firms.

Retired workers would not be able to take a lump sum from the guaranteed retirement accounts, like an IRA or 401(k). Instead, they would receive monthly payouts like an annuity. Their heirs would receive the benefits if a worker dies before retirement.

"This plan would help everyone get a higher rate of return at a lower cost than 401(k) plans," said Ghilarducci, who initially proposed guaranteed retirement accounts in 2007.

The drawbacks

Guaranteed retirement accounts have a long way to go before they would ever become a reality.

The long-term funding of Social Security, which provides 34 percent of income for elderly Americans, is a bigger retirement issue than a replacement for 401(k) plans, said Brian Reid, chief economist for the Investment Company Institute, which represents the mutual fund industry. (Trump has said his administration will preserve Social Security.)

"It's a bit like starting a very expensive and complicated new building project, when what's really needed is making some updates to the house you have," Reid said. "It just doesn't make a lot of sense for anyone, most importantly retirement savers."

Despite the obstacles, Ghilarducci is confident that guaranteed retirement accounts could happen because of legislative activity at the state level.

Since 2012, more than half of state legislatures have considered bills that would create government-run retirement plans for private-sector workers that compete with 401(k) plans. Oregon's plan will begin enrolling workers in July.

Ghilarducci likens the wave of statehouse proposals to when 30 states created old-age pension programs before the federal government started Social Security.

"Whenever this happens, there is always a big push by business groups for a uniform federal plan," she said.