Et Tu, Shlomo – A Response to Benartzi’s Response

 Editor’s Note: To his credit, Shlomo Benartzi took the time to respond to my recent column on his Wall Street Journal op-ed on LinkedIn (you can read it here) — though to my read, the concerns expressed on where such a proposal could lead remain. Consider this a brief follow-up.     

Shlomo,

Whew! I can’t tell you how relieved I am/was to have you clarify that you are NOT advocating a government-run retirement plan system. I guess you referring to three specific government-run systems as models to be considered persuaded me that you thought those were good examples for us.

You’ve now pointed more specifically to the Australian model where “workers remain by default with their first plan provider, even if they change jobs.” But as I am sure you know, there are some significant differences between that system and ours — differences that, to my eye, wind up being significant. 

First and foremost, that system is funded primarily by mandatory employer contributions at a fixed rate (on its way to 12%). So, there is no default “reset” when you change jobs — your new employer just keeps putting in the same amount your previous one did. I feel that this default reset was a primary motivator in your recommendation — but that system and ours are “apples and oranges” when it comes to employee contribution defaults. They don’t have the problem you are trying to solve because the government dictates the contribution amount — with no acceleration.

Secondly, and perhaps because we’re (only) talking about employer contributions, there is no access to that Australian system money before retirement (or conditions, like disability, similar to it). I think that makes this money — and feelings about it — different than employee salary deferrals. My financial circumstances change over time, and as your op-ed acknowledges, might do so particularly with job change. I’d have no such option in that system. Good for retirement, perhaps — but for life?      

Thirdly, while the Australian system DOES have private-sector money managers (and a handful of system trustees), those are government overseen and provide a SIGNIFICANTLY smaller list of choices than one would find here. I don’t doubt that those smaller numbers (it’s a smaller market, after all) compete for business, but I haven’t seen the kind of innovations there that we’re seeing here every day (things like the auto-portability provisions/network, which as I wrote, would significantly smooth the rollover process/outcome — PARTICULARLY for small balances that were of a particular concern in your op-ed). While it may not be a government-run program per se (beyond mandating contributions, restricting access until retirement and oversight of the providers), there’s clearly a strong government “influence.”

Finally, people continue making a big deal about how employment patterns in the U.S. have changed — but the data just doesn’t support that. Oh, sure — we now have a label for some of that (“gig” workers), but in the private sector, tenure and turnover have been remarkably consistent…since WWII. Lifetime employment is (and was always) a myth outside of the public sector and certain union occupations.

Shlomo, you’ve been a great supporter and advocate for retirement savings — someone I deeply admire and respect. My comments weren’t meant as an effort to forestall new thinking — rather I see this remarkable and dynamic industry constantly working to improve and expand. 

Not so long ago we didn’t have a reset default “problem” because (a) there were no defaults, and (b) there was no contribution acceleration to reset from. Those are positive developments — that the private retirement system is working on. Let’s not throw that “baby” out with the bathwater by reducing choice and access.    

Your Friend,

Nevin