401(k)s aren’t perfect. If it comes as a shock you’re in the wrong business. A paper released at a recent confab of sociologists takes the DC stalwart to task for allegedly contributing to (wait for it …) income inequality. Apparently, it takes a research paper written by two professors from the University of Kansas who then fly to Seattle to deliver a keynote presentation for certain “experts” to realize educated people do better in life—and that includes with retirement saving.
The paper found that people with a bachelor’s degree are 1.2 times more likely than high school graduates to enroll in employer-based plans, which naturally leads to more disparity in retirement outcomes at the far end.
Don’t you get it? The fact that some have more than others is an indictment of the entire system; it’s unfair and must be rectified. If only we could go back to the days of DB, they posit, all would be well.
They’re sociologists, so they’re gonna be biased. We’ll fight a little fire with fire and bring in our own academician, Alicia Munnell, hardly a flag-bearer for free-market solutions herself. The director of the Center for Retirement Research at Boston College had her Road to Damascus moment late last year.
In a startling reversal, she revealed she’s now on board with 401(k)s, noting that the hit taken by American workers by switching from defined benefit to defined contribution plans isn’t what she once thought.
She’s not alone.
Around the same time, Jack VanDerhei of the Employee Benefit Research Institute noted that when the income replacement rate is set at 80 percent (a realistic mark set by most financial planners), the results between a DC and DB plan are virtually even “for all groups except for the lowest-income quartile,” which, believe it or not, tracks with the Kansas profs findings.
No matter—the media (but not us) predictably pounced. While few mentioned Munnell and VanDerhei now, and nothing was said last year, the latest paper just happened to be released days before the DOL’s final rule on state-run plans. Think it’s the last of such coincidences? Think again.
A certain percentage of professionals will always believe the government will do it better. How it will happen, who will pay for it and proof of when it’s ever been the case is of course anyone’s guess. For now the 401(k) is the best we’ve got, continually improved upon and performing admirably.