A TikTok viral video slamming 401(k)s as a “scam” is patently wrong and could be misleading hundreds of thousands of retirement savers, especially Gen Z, according to retirement savings experts.

“TikTok influencers use exaggerated, click-inducing terminology like ‘scams’ to mislead consumers,” says certified financial planner Eddie Patel, who manages $100 million in client assets.

The video—which itself is biased for promoting two complex variable life insurance policies as a 401(k) alternative—is dangerous because “Gen Z gets a frightening portion of its information from influencers on TikTok,” Patel adds.

“It makes you want to just slam your head into the desk,” certified public accountant AJ Campo tells Morningstar.

401(k) Benefits

“401(k)s have been the most significant development in the retirement planning space behind only the Social Security program,” Patel says.

Today, nearly two-thirds of employers offering 401(k)s automatically enroll their employees in their plans and of these, 98% match at least some of their employees’ contributions, typically 4% but sometimes as much as 6%.

That means, even if retirement is the last thing on your mind, your employer puts you on the retirement savings path and guarantees you a very decent return through their match.

Most 401(k) savers opt for the traditional, rather than the Roth option, which means their 401(k) contributions are deducted from their salaries, thereby reducing the taxes they pay. Plus, compounded earnings on investments grow tax deferred in a 401(k), says Sean Menickella, managing director at Beacon Financial Services.

“I think 401(k)s have been incredibly positive for retirement investors,” Menickella says.

Not only do many 401(k)s automatically enroll participants, but they also typically invest savers’ money in institutionally priced, professionally managed, well-diversified mutual funds. A typical choice is a target-date fund, a sort of “set-it-and-forget-it” fund that reduces equity risk exposure as investors get closer to their retirement target date.

How 401(k)s Could Be Improved

The life insurance plans that the TikTok video touts are sold on commission and carry high fees, retirement experts note.

“Variable life insurance is wildly expensive and can be just as volatile, perhaps even more so, than 401(k)s,” Patel says. “Agents are paid very large commissions to spin highly inaccurate narratives that can lead people down really dark investment roads.”

That is not to say that 401(k) retirement plans do not need improvements of their own.

“The level of fee transparency is better than it was 10 years ago, but there are still issues with proper disclosure of what fees are actually being paid by participants,” Menickella says. “There can also be a harder push to lower these costs, which, I believe, will lead to more transparent disclosure from plan providers.”

Employers could also offer more financial education to workers, especially today as they grapple with inflation, he adds.

“Younger workers are already finding it difficult to save for retirement in today’s economy,” Menickella says. “Many young people feel the financial pressure of student loan payments, an expensive housing market and the cost of goods across the board.”

Beside saving for retirement, Menickella continues, “we should be promoting ways for workers to navigate these other financial concerns—such as buying a house, household budgeting, etc., to allow them the opportunity to participate more in saving for retirement, not discouraging them.”

As for the TikTok video's point that 401(k) savers cannot access their money without fees until they reach 59-1/2, that could actually be viewed as a plus, since 401(k) money is meant for retirement.

The video also knocks 401(k)s for their tax-deferral, making the point that taxes as a general rule go up and that it isn't a given that people will face lower taxes in retirement. But, as noted earlier, earnings in a 401(k) grow tax-free, and savers often do have the Roth 401(k) option that permits savers to withdraw their money tax-free on the back end.

For viewers of the video and copy-cat videos that have attracted more than 2 million views, Campo has this admonition: “TikTok is just littered with horrendous information.”