Unforget Able?

A recent headline in The Wall Street Journal started off: “Forget the 401(k).” And then, unintentionally, proceeded to explain why that would be… nuts.

Not that the author (Jason Zweig) didn’t throw in some digs at the subject, making a glancing reference to what he termed “the rigid and often paltry 401(k)s that workers have today” before going on to berate America’s retirement plan, dismissively claiming that “there’s little question that the 401(k) as we know it just isn’t getting the job done.”

That, of course, depends on what one considers “the job” – though, to his credit - and I generally appreciate Jason's perspectives - he didn’t fall into the common journalistic device of pining for the “good old days of the defined benefit plan.” Quite the contrary, he bluntly proclaims (in language that one rarely sees attributed to DB plans) that even in their heyday, “defined-benefit plans were, in fact, sporadic, arbitrary and unfair.” (This is a pervasive myth – see “‘Myth’ Understandings.”)

That said, the issue might be that he’s not very well acquainted with “the 401(k) as we know it.” Consider that his recommendations for a “new retirement plan” aren’t exactly “new,” nor are they the kind of thing that would seem to “reinvent retirement-savings plans from scratch.” Rather, the article calls for:

1. making “it easier to convert savings into regular income” (by providing incentives to workers to take distributions as annuity income, since, left to their own devices, individuals don’t); 
2. implementing solutions so that “retirement income should last well past 65 (a.k.a. deferred longevity annuity); and 
3. making it harder for folks to tap into their retirement savings prior to retirement (by directing some initial contribution funding into rainy day accounts). 

Indeed, perhaps the most radical notion – and one that might well push aside the 401(k) with a government-run version. Put forth by former Assistant Secretary of Labor Phyllis Borzi, this is a program that would be voluntary for employer contributions, but mandatory for employees – “regardless of whether you were self-employed, a full-time employee, an independent contractor or a leased employee” where a “professionally managed not-for-profit company with an independent board of directors would collect and invest retirement contributions from you and your employers.” An idea that sounds awfully (and I do mean “awfully”) similar to an idea proposed in the House late last year. 

But the idea that the author devoted the most space to was, ironically enough, the notion of taking the “forgettable” 401(k) – and making it universally available! This, ironically enough, from Ted Benna who, of late, has mostly been touting a new book and dissing the program he’s often credited with “discovering.” 

Ultimately, headline notwithstanding, it’s hard to imagine any of these “new” ideas as a reality without the underpinning of the 401(k). In fact, apparently the only thing holding the “forgettable” 401(k) from doing “the job”… is that everyone doesn’t have one.

But I’d say that makes the 401(k) pretty UN forgettable!

- Nevin E. Adams, JD