Haters Hate: Writer Cynically Rips, Unintentionally Praises, 401ks

401(k) cynics target millennials; swing and miss.
401(k) cynics target millennials; swing and miss.

Sure, the 401(k) could have been named something better, but an unintentionally amusing piece from New York magazine simultaneously praises and slams the retirement stalwart, and eventually undercuts every gripe (save one, the aforementioned name) it initially makes.

It’s a lesson in cynical “fun” from the media, and how they hurt those they profess to help—the consumer. But it also makes it that much harder to rebut such nonsense when participants clip the page to smugly present at your next education and enrollment meeting.

“There’s nothing that makes me want to staple my eyes shut quite like 401(k)s,” author Charlotte Cowles joyfully writes. “‘The term literally brings up a block in my brain,’ a friend told me recently. ‘It’s like when you can’t remember a password to an account, and the reset function won’t work. Just: full stop.’”

Apparently unconcerned that her friend “literally” has a block in her brain, she rhetorically asks about the kind of person who names “his brilliant idea after a tax code.”

That would be Ted Benna, of course, to whom she then appeals for authority. She specifically notes how he’s said he “created a monster,” which Cowles describes as, “A giant finance vehicle fueled by hidden fees that Americans are blithely packing their hard-earned money into, unaware that their savings are just spinning wheels in the mud.”

In reality, Dr. Frankenstein is not as quick to dismiss his lumbering creation. Quite the opposite, at least from our conversation.

“There is a general perception, mainly from the 401(k) haters, that the defined benefit plan was great and now [retirement saving] is all screwed up with 401(k)s,” Benna told us. “But what both defined benefit and defined contribution plans need are a robust economy and healthy stock market. Many defined benefit plans make promises that may or may not be realized due to the underlying funding of the plan. At least with a defined contribution plan you always know what the asset situation is.”

He pointed to the fact that fully 97 percent of 401(k) plans cover 100 or less employees. Those firms, he argued, would have been too small to have defined benefit plans anyway.

Referring to “this annoying idea that somehow we had this great system before defined contributions,” he also recounted working at a company as a young professional in the early 1960s. Men were able to participate in the retirement plan at age 30 and women at age 35 (ah, the good old days). Employees were fully vested at age 60.

The firm, of course, was famous for trying to get people to leave just prior to 60, he noted, “and there was no safety net. If the company went out of business, that was it.”

Cowles’ column is meant to provide investing advice to a young millennial named, what else, Zoe. In doing so she ends up discounting her entire premise:

“ …Zoe, you’re in decent shape. By steadily contributing to your 401(k) from an early age, you’re leaps and bounds ahead of most people [emphasis ours]. More good news: When you contribute over a certain percentage of your salary to your 401(k)—usually around 7 percent—many employers (and hopefully yours) will ‘match’ your contributions … Look into your current company’s matching program; if one exists, make sure you contribute enough to qualify for it.”

Sounds pretty good, so why waste the word space in the first place?

John Sullivan
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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.

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