Washington ? For many Americans, 401(k) plans were supposed to be their own little golden parachutes into retirement.

Now, it seems, those parachutes may not open in time.

The global financial crisis that revealed the flaws of Wall Street has also exposed the vulnerability of America’s retirement system. Employers have increasingly abandoned traditional pensions, forcing workers to rely on 401(k)s and similar plans that have a lot more exposure to the stock market. The assumption was that even if the market suffered short-term losses, over time it would rise, allowing workers to recoup their savings. But the steepness of this year’s market collapse and the still-uncertain depth of the economic downturn has prompted lawmakers, academics and economists to question the wisdom of letting workers hitch their retirement fortunes to the precariousness of the stock market.

Before Monday’s rebound, the Dow Jones industrial average was down 36 percent, eroding the savings of millions of Americans and forcing those who had planned to retire in the next few years to reconsider their plans.

Decline of pensions

Until three decades ago, Social Security and pensions, formally known as defined-benefit plans, were the main sources of retirement income. Now, Social Security is in danger of eventually running out of money. And defined-benefit plans, in which employers made the investment decisions and promised to pay employees a set amount each month for the rest of their lives, are quickly disappearing.

Favored by the “ownership society” movement, defined-contribution plans, which 401(k)s fall under, have picked up the slack. In 1985, there were 29 million participants in defined-benefit plans and 10 million in 401(k)s. In 2005, there were 21 million in defined-benefit plans and 47 million in 401(k)s. The government has encouraged that shift, providing $80 billion in tax breaks each year to people who store their money in 401(k)s. But in return, workers have had to assume the investment responsibilities even if they know little about the stock market. They have also had to give up their lifetime guarantee of income.

“Everyone wiped their hands of any obligation for retirement, and the burden shifted from the employer to the employee, and the risk is shifted from the employer to the employee,” said Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, who last week convened a hearing to examine 401(k)s. “In the beginning, no one ever said, ‘Would this be sufficient? Would it work?’ and what you see is a plan that is highly responsive to external events unlike Social Security, unlike defined-benefit plans, unlike a public pension plan.”

Risks and rewards

Proponents of 401(k)s say with those greater risks come greater rewards. “If you own equities, you really have to believe in the American capitalist system in that the dollars will find the highest and best use,” said Mickey Cargile, a managing partner for WNB Private Client Services, a financial advisory firm in Texas.

This year, the average account balance of 401(k) participants has dropped 7.2 to 11.2 percent, according to an analysis of 2.2 million plans by the D.C.-based Employee Benefit Research Institute. But many workers have seen even sharper declines in recent months, analysts and economists say. Further draining retirement accounts is that many workers have been allowed to dip into their 401(k)s for loans or so-called hardship withdrawals. That trend has been increasing in recent months because people can no longer tap the equity in their homes to pay down credit card debt.

Recovering from a loss

The experts disagree over how long it takes to recover from a bear market. The financial firm T. Rowe Price found that in the past five bear markets going back to 1976, the longest it took for stocks to recover from their peak and then provide a 10 percent annual compound return was eight years. The shortest was five months.

Sarah Holden, senior director of retirement and investor research for the Investment Company Institute, which tracks mutual funds, looked at the bear market of 2000 to 2002. She found that among participants who stayed in their 401(k) accounts, the average account balance fell 8 percent from 1999 to 2002. But in 2003, the average balance increased 30 percent. Overall, the average balance almost doubled from the 2002 bottom through 2006, she said.

Teresa Ghilarducci, a professor of economic policy analysis at the New School for Social Research in New York, provided a bleak assessment for what might happen this time around. She calculated what you would end up with in 10 years if you had $100,000 in your account in August and lost 20 percent of it last month. If you were paying 2 percent in administration fees – as many 401(k) plans charge – and the stock market remained flat for three years – a real possibility given how it has performed – and then earned 1 percent per year – as it did in the 1970s – you would have $67,000 by the end of the decade, she said.

“With a flat market at best and high fees, it is likely they will have less than they and their employer put in,” she said.