Is it two birds with one stone or taking an eye off the ball?
More “good ideas” are being suggested to use 401ks and retirement savings in areas other than intended—student loan reduction and parental leave but two.
An argument can be made that debt and distractions delay saving, and their removal early-on would therefore be wise, allowing a retirement-centric focus for plan participants going forward.
The argument’s counter, however, is that acquiring the discipline to save is difficult enough, with far too few engaging in responsible behavior (or with a rate much too low), and proposals like these create more barriers to positive outcomes.
It all stems from last week’s IRS private-letter ruling that “will help clear the way for employers to provide a new type of student loan repayment benefit as part of their 401k plans.” It comes on the heels of a bill sponsored by Senator Marco Rubio to allow Americans to use Social Security benefits for maternity and paternity leave.
The Wall Street Journal took issue with the latter, wisely noting, “A reliable guide to a bad proposal in Washington is when both parties dispense with persuasion and substitute bromides about an idea whose time has come.”
The paper adds that Rubio and the plan’s supporters are skewing the numbers for advantageous results (shock!).
“He claims his benefit doesn’t expand government or create a new entitlement. But what is expanding government if not taking a benefit financed by private industry and administering it through a government program? Paid leave by definition entitles Americans to a de novo benefit without even an imagined connection to old-age insurance.”
As a recent report from the Mercatus Center reiterated (obviously), “Social Security is predicated on benefits earned by working over a lifetime,” yet the Rubio plan “would let workers draw on the fund even if they don’t meet the lifetime Social Security requirement of 40 quarters of employment.”
“Some on the right are fine with this because they claim young people aren’t likely to see a dime of Social Security anyway,” the Journal concludes, a dubious view and even scarier strategy on which to base 401k drawdown and Social Security claiming strategies, and a reason for far too many mistakes by eligible participants.
It’s something we tackle in our upcoming issue, but for now, know that “fully paid for” today means a major mess tomorrow. Better to leave retirement plan benefits as they are, continue education and financial wellness efforts to increase participation, and tell political actors to leave it alone.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
