The Plot to Kill the 401(k)…Thickens

Critics of the 401(k) have moved way beyond mere bad-mouthing—and are now openly advocating actions that would undermine support for, and participation in, those programs.

It started with criticism of the 401(k) itself—how it was “never intended” to be a primary source of retirement income—as though that precluded the possibility. There were the insinuations that later became outright claims that—despite evidence to the contrary—401(k) plan benefits were “upside down” and that tax benefits accrued only to the rich. Then reports—based on small samplings of data—that employer matching contributions didn’t really impact/influence contribution levels—and that the match was…“unfair”—or “exploiting naïve myopic workers.”

More recently, there was the pining for the defined benefit plan design, even though it never really provided the level of benefits promised for most—and even though the vast majority of workers in the private sector never even had that as an option—and even though no serious analysis with a full appreciation of the costs (and risks) of businesses taking on those obligations sees that as a reality. 

Yes, for years now the 401(k) has suffered the Shakesperean “slings and arrows of outrageous fortune.” Sometimes the motivations of those throwing stones have been obvious—sometimes not.  Some are surely just academics desperate/eager to be published, others have a strong preference for/commitment to a federal government “solution,” rather than the private sector. Some—surely some—are honestly just motivated to examine and improve on that voluntary system—but limited by access to comprehensive data. 

Of course, one might instead more cynically wonder if there’s a deliberate reliance on distorting measures like averages and means extrapolated from accounts ranging from those at the beginning of their savings career with those nearing retirement—in that, the retirement industry itself has been complicit in its search for clicks and headlines, regardless of the messages those distortions perpetuate. Throughout, there have been criticisms about the lack of coverage and/or participation—but little acknowledgement that the system has long been considered as supplemental to that “big government” solution—Social Security (which, let’s face it, has challenges of its own).

Having laid that groundwork, in recent weeks, those voices have become increasingly bold in their condemnations. There’s no longer any pretense about their plans for the 401(k). Quite frankly, they plan to starve it to death—to redirect those tax deferrals to other projects, and not as deferrals, but as outright taxpayer-funded “grants.” Not so long ago, the notion of taking away the preferences that do, in fact, encourage participation—but more importantly foster sponsorship of these programs—would have been anathema to political prospects. Apparently, those days are now behind us.    

Little wonder that in the latest Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI) and Greenwald Associates, the second-highest concern of survey respondents was that the U.S. government would make “significant changes to the America retirement system.” 

So, what can we do about all this? Here are some suggestions:

Call out those in Congress who want to strip away support for the 401(k). Here I am talking specifically about the sponsors of the latest attempt to undermine the private retirement system—the sponsors of the innocuously labeled “Retirement Savings for Americans Act” (RSAA). More specifically, I’m talking about Sens. John Hickenlooper (D-Colo.) and Thom Tillis (R-N.C.), as well as Reps. Terri Sewell (D-Ala. 7th) and Lloyd Smucker (R-Penn. 11th). Up until now, the sponsors have demurred on how this bill would be paid for—until Sen. Hickenlooper recently acknowledged that he would be willing to reduce the 401(k) incentives and limits to pay for the proposed plan, which would include a 5% federal match. That’s right—a 5% federal match. Those heading to the NAPA DC Fly-In Forum, take note!

Quit sharing and promoting “research” based on distorted or questionable data—and the organizations that produce them. Yes, I know you’re just trying to highlight the need for action, and perhaps to provoke a business opportunity. And yes, I know you don’t always have time to wade through the assumptions and math, not to mention biases in sampling size—or those that are simply surveys of individuals that don’t know any “better.” But if you feel compelled to share it, at least take the time to acknowledge that you haven’t had the chance to validate the results.  And come to https://www.napa-net.com where we try to keep you up to date on such things.

Support the organizations that are supporting and advocating for positive change and enhancements in these programs. If you’re reading this, you’re likely already a supporter of one of those (the National Association of Plan Advisors)—and good for you. You can (and should) also support those efforts by participating in committees, conferences, and education programs. And by sharing the information you find here. You can even start with this one!

Quit apologizing for the 401(k). That’s right. Even the 401(k)’s most vocal champions seem to be inclined to acknowledge “we still have work to do.” I’m not suggesting we ignore realities—but this “voluntary” retirement savings program has in a remarkably short period of time become THE way Americans save, and they have VOLUNTARILY set aside TRILLIONS of dollars for the future. To my eyes, this is a jaw-dropping incredible, amazing success. 

The failure laid at the feet of 401(k)s—if a failure it is—is that people who don’t work, or who don’t work for employers who offer a retirement plan at work, are in worse shape than those who do. Now, I’m not saying that the 401(k) design works for everyone, and it most assuredly won’t work for those who don’t have access to its benefits. That said, 401(k)s are working for far more people and in far more varied circumstances than the fear-mongering headlines give them credit for. It’s one thing, after all, to acquiesce to what has become a journalistic “creed”—that “if it bleeds, it leads”—and something else again to wield the knife. 

Those of us who see the impact it has made, and continues to make, on a daily basis need to be willing to say that. Out loud and proudly.

- Nevin E. Adams, JD