So, in 1980, the government offered a huge tax savings to encourage retirement savings, while today it offers little or no benefit. The employer contribution is still valuable, with a 100 percent match worth 2.3 percent per year in extra return over 30 years, but that has nothing to do with the 401(k) structure.

Another big change since 1980 is the availability of zero-cost, tax-efficient, well-diversified index funds in convenient form for retail investors. Yes, 401(k) plans have reduced costs as well, but to a much smaller degree.

In 1980, a typical investor might have paid 3.5 percent of assets in fees, either in or out of a 401(k). In 2020, that's shrunk to perhaps 1.5 percent for a typical 401(k) and 0.5 percent for other funds. Some employers offer 401(k)s with fees equal to, or even lower than, taxable alternatives. But others are stuck around the 3.5 percent level.

Now that 401(k)s have become the primary source of retirement savings for the middle class working in the private sector, we should restore the large tax incentive and bring fees into line with taxable investment standards.

One easy change is to allow workers to roll 401(k) funds over to self-directed IRAs at any time—now most workers can do this only when they leave a job.** That change would force 401(k) platforms to compete in an open market, and it would cost nothing.

Reducing taxes on 401(k)s would cost the government money, but it could be a good investment if it resulted in retirement security for more middle-income households. One simple idea is to make new 401(k) contributions, and accumulated returns from them, tax-free if they are withdrawn in retirement by a below-median-income household. Another is to exclude FICA payroll deductions, as well as income tax, from 401(k) contributions. Not only would these changes make the tax advantages of 401(k)s compelling again, but they would also eliminate the danger many workers fear: that marginal income tax rates will be higher when they retire (a more reasonable fear at a 12 percent marginal rate, with 2020 government deficits, than it was in 1980 with a 43 percent marginal rate and far smaller deficits). And all the benefit of these changes would go to households that are below-median-income in retirement. There would be no subsidy for households in the top half of the income distribution.

The claim that a frog placed in slowly warming water will boil to death without trying to escape is factually incorrect, but it's too useful a metaphor to discard. We have been slowly raising the temperatures on 401(k)s for 40 years, and we're nearing the point at which they no longer make sense for workers, except those fortunate enough to be offered the best plans or good employer matches.

I don't know which is worse for the worker frog—jumping out and thereby exacerbating the middle-class retirement savings problem, or staying in and finding the retirement plan eroded by unexpected effects of fees and taxes. Let's turn off the heat and add some cold water.

*Median-income, four-member households in retirement paid 0% capital gains taxes in 2018, the last year for which data are available. Higher-income households and those in different tax situations may pay at rates of 15% or 20% on long-term capital gains.

**Individual employers may allow rollovers while employees continue to work, but they are not required to. Those that do allow it often have minimum age requirements. Moreover it's usually the employers with the best plans that allow employees to opt out.

Copyright 2020 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.