Why Knots?

We spend a fair amount of time worrying about the relatively small percentage of workers who choose not to participate—at all, fully, or effectively—in their workplace savings plan. Well that we should, because for a myriad of reasons, they are letting a great opportunity pass them by.

However, the real crisis, IMHO, is not about the minority that we hope to stir to action with devices like automatic enrollment, tailored communications, and personal advice. Rather, the real crisis is the majority of American workers who lack even the opportunity to participate in a workplace retirement plan. Certainly, those people are on politicians’ minds, as evidenced by last week’s proposal by Senator Hillary Clinton that purports to provide "universal access to a generous 401(k) for all Americans.” Now, you can argue whether tax credits for the middle- and lower-income workers targeted will be enough to motivate them to take action, and you can certainly take issue with the price tag (and if we know nothing else about politicians of all stripes, it is that those cost projections are always “optimistic”)—but it’s hard to take issue with the need to expand the opportunity to save for retirement to everyone.

And yet, in the interests of laudable goals like “transparency,” “fairness,” and “accountability,” we have nonetheless managed to regulate private-sector retiree health care nearly out of existence, to relegate the support of private-sector defined benefit plans to the sidelines—and we are well on the way to doing the same in the public sector. In fairly short order, our once-vaunted three-legged stool now totters on the financial viability of Social Security and the ability and willingness of individual American workers to make the proper preparations.

It has its imperfections, but it’s clear that the employer-sponsored system works. We may fret about 75% participation rates, but left to their own devices—without the financial support, structure, and education of the employer-sponsored system—individual savings rates are appallingly low. We may well worry about the lack of revenue-sharing transparency and “excessive” fees paid by 401(k) plan participants, but have you taken a look lately at what you would pay for to open a retail IRA that offers a fraction of the services in your 401(k)?

As effective as that employer-sponsored system has been—as essential an element as it surely is in ensuring the retirement security of millions—we continue to undermine the willingness of employers to carry the burden. Somewhere along the way, we seem to have lost sight of the fact that these programs are voluntary, in every sense of the word. They cost money, they take time, they are subjected to an ongoing barrage of change—and, of course, there’s the ever-present threat of litigation.

Yet, we seem to expect employers to continue to support these programs, an expectation that, IMHO, borders on arrogance in view of the burdens imposed. Sure, they attract and, perhaps, allow us to retain good workers—and certainly there are modest tax incentives. But in a time when companies are driven to focus on their “core competencies,” surely we must find some more-meaningful ways to encourage those who have made the commitment to stay the course—and some compelling financial rationale for employers that have resisted the pull to join in.

We all know well why we need the employer-sponsored system. What is less obvious each day—is why a rational employer would be willing to take on the headaches currently imposed by that system.

- Nevin E. Adams, JD