Times Editorial Repeats "401(k) = Stocks" Lie
A New York Times editorial today falsely suggests that the recent stock market collapse means a universal decline in all 401(k) accounts:
If you have a 401(k) retirement plan at work, you don’t need us to tell you that you’ve taken a hit in the past year. The really bad news is that the damage to your retirement security is likely worse than what the numbers say on your statement.
…
There’s also no guarantee that today’s battered 401(k)’s will rebound powerfully. People close to retirement don’t have time for a do-over. Even for those still far from retirement, there’s no telling how stocks will perform in the future.
The entire editorial is premised on the false assumption that all 401(k) accounts are and must always be exclusively invested in equities.
In reality, federal law requires 401(k) plan administrators to offer a wide variety of investment vehicles, including at least one money market or other cash equivalent. With very few exceptions, employees have essentially unlimited freedom to choose lower-risk vehicles, including cash or cash equivalents.
It is true, of course, that the switch from defined-benefit pensions to defined-contribution retirement accounts places a new burden of financial literacy on employees. They must now plan for their retirement actively, taking into consideration factors such as investment objectives, time horizons and risk tolerances.
But those new burdens hardly exist in a vacuum. They allow those employees who are willing to make the effort to educate themselves the opportunity to customize their savings to suit their own particular needs.
This “risky scheme” innuendo is exactly the same sort of lie that opponents of Social Security reform relentlessly foisted upon people: the false suggestion that even the slightest move toward voluntarily partial privatization would have involved compulsory investment in the stock market. That was simply never a part of any proposal by President Bush, or of any other proposal I’m aware of.
And there is also the other Great Omission™ by the opponents of defined-contribution accounts: vesting. How quickly they forget the shackles of having to work for the same company for 20 years or more, unable to quit for fear of forfeiting an all-or-nothing defined-benefit pension.
The portability of vested retirement funds liberated an entire generation of workers to move from employer to employer, in search of better compensation, working conditions, location, whatever. (Much the same argument could have applied to voluntary Social Security accounts. Alas…)
It is classic nanny-state hubris to presume that every employee of every employer in every circumstance would always prefer “freedom from worrying about retirement” to “freedom from having to work for the same employer for twenty years.” It is classic yellow journalistic muckraking to lie about it.
Previously:
–McCain’s Argument Against Social Security Reform
–Will the Democrats Privatize Social Security?
–The Working Poor, Retirement and Social Security
Filed under: Activist Legislators & Nanny Statists, Economics & Finance, Social Security
another problem is the tax-deference and the fact that employers "match" employee contributions. Absent from any discussion about "what to do about 401k" or SS, is why an employee who voluntarily rejects the option to contribute e.g., 5% of Gross which the employer would "match", can't call for an additional 5% take-home in each paycheck? Of course, it's to "encourage" savings, but sometimes (as you're well aware) what people need is immediate cash. For many lower-middle to middle-class employees, even ceasing to contribute that 5% nets them a negligible sum in their take-home pay.
The Times' opposition to charter schools, homeschooling, etc., in combination with its misleading or poorly informed journalism (I moved much of what I have into non-stock choices months ago), almost makes one think that what the Birchers said about it, decades ago, was true.
I still think the more reasonable explanation is that the sort of mind that's driven to succeed in bigtime journalism has no inclination to write sensibly about economics.