We love Jason Zweig ever since he went long in a keynote presentation to the Morningstar faithful at its investor conference some years ago.
Anyone who’s tried to adhere to an event schedule knows it was a baller move, only because the assembled advisors (and Don Phillips) didn’t mind and hung on his every word.
Intelligent, witty, entertaining—with an irreverent streak—he slays sacred cows with more gumption and gusto than his predecessor Jonathan Clements.
But with this retirement savings side of beef, he’s just plain wrong.
His latest Wall Street Journal piece rips the 401k in its current form, decrying a lack of guarantees like those inherent in its DB counterpart while praising its favorable tax treatment, and wishing for a better mix of the two.
He also appeals to 401k “founder” Ted Benna’s authority in making his case for higher worker coverage overall, noting Benna “remains frustrated by the glacial pace at which access to retirement plans has widened.”
Zweig then quotes Benna in his argument for better retirement income conversion strategies, similar to the paycheck-for-life pitches from annuity manufacturers.
Fighting Benna with Benna, we’ll quote from our own conversation with the retirement plan pioneer about murky memories of DB days passed:
“There is a general perception, mainly from the 401k haters, that the defined benefit plan was great and now [retirement saving] is all screwed up with 401ks. 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.”
Benna points to the fact that fully 97 percent of 401k plans cover 100 or less employees. Those firms, he argues, would have been too small to have defined benefit plans anyway.
“Both defined benefit and defined contribution plans have strengths and weaknesses,” he diplomatically adds. “There is this annoying idea that somehow we had this great system before defined contributions. I remember working at a company in the early 1960s when I first started out. You were able to participate in the retirement plan at age 30 if you were a male and age 35 if you were female. You then needed to stay with the company until age 60. Well, firms like these were famous for trying to get people to leave just prior to age 60, which means you’d get nothing. And there was no safety net if the company went out of business; that was it.”
Credit where due
Zweig does mention the “[o]ften romanticized” part that pensions played in the supposed “golden age of retirement.”
Indeed, he makes fair points about the improvements needed to deal with ongoing and evergreen longevity issues; so, it’s not what he says, but how he says it.
As we’ve noted many (many, many) times, Alicia Munnell, director of the Center for Retirement Research at Boston College, once fretted about the shortfall in 401k replacement rates when compared with defined benefit plans, but her thorough examination of the data caused a change of thinking.
Talk of replacing the 401k rather than reforming the 401k—which is really Zweig’s argument—therefore isn’t helpful, and discourages participation at a time it’s needed most.
Baby/bathwater, nose to spite the face; freely pick the cliché, but be careful with recommended policy prescriptions to improve the country’s retirement saving system, and the security of those it affects most.
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.
