CBS News is the latest media outlet to take a swipe at 401ks by employing the extremely in-vogue income inequality argument (which is quickly morphing into the “equity” talking point).
Titled “401(k) plans favor rich people. Here’s how to change that,” a semantic sleight-of-hand happens early, with the first paragraph claiming the 401k is failing most workers. It then quotes the Federal Reserve in that “Fully half of U.S. families have no retirement accounts whatsoever,” without acknowledging IRAs and conflating employer-sponsored plans with personal retirement accounts.
It also conveniently ignores the steep rise in coverage and participation due to auto-enrollment, innovation in the form of target-date funds, and recent legislative success that primarily benefits smaller companies.
Fees, of course, are criticized, without noting the sharp drop in costs over two decades, decreases that continue to a point where today margins are razor-thin.
It then makes the bizarre argument that because lower-income workers pay little in tax, the account’s tax-advantaged nature is of minimal value. Is a smaller tax bill for low-income workers somehow a bad thing? Should they be taxed more to get the full benefit?
The tax-favored status of the 401k is again referred to as a subsidy, as our Beltway betters bestow the gift of allowing us to keep more of our own money.
The go-to person for all things government and retirement-related, Teresa Ghilarducci, is quoted throughout. She’s a perfect fit, having referred to the 401k as an “immature, underdeveloped child.” Her TSP-for-the-masses idea is called a “bold new proposal” by the author of the piece.
CBS also quotes conservative economist Kevin Hassett on Ghilarducci’s TSP idea, and the not-so-subtle “see, even big-government hating conservatives love it, so you should too” shines through. Hassett is known for his widely-panned 1999 prediction (and subsequent book) that an uninterrupted bull market run would cause the Dow to hit 36,000 by 2004. A tech implosion, Great Recession, and global pandemic got in the way.
We’re not here to bash Hassett or Ghilarducci (whose work we respect if not always agree) and encourage programs that understand and incorporate behavioral-based solutions. But why the constant need to denigrate a defined contribution system that’s worked incredibly well, with income replacement rates on par with pension plan predecessors?
“We want to take this simple, well-designed product and expand it to everyone,” Ghilarducci says in closing. It’s one point, at least, on which we agree.
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.
