Move to 401(k) plans is damaging to national retirement security

Andrew Biggs’s article “Who Killed Retirement Security? If You Look Closely It Wasn’t the 401(k)” (May 28) can almost be classified as “fake news.” References in the article are vague, and in some cases misleading. For example, the article refers to a 2016 Census Bureau study, but the URL takes the reader to a National Bureau of Economic Research study that focuses on women’s retirement issues.

The only thing that Biggs’s article is right about is that “unlike traditional pensions, 401(k)s can only promise what they can pay.” In other words, you are on your own in retirement. If your 401(k) service provider rips you off or goes under, tough luck. There is no recourse. There is no agency that protects bank savings accounts for 401(k) plans. Furthermore:

{mosads}• Herbert Whitehouse, former human resources executive at Johnson & Johnson and one of the first to suggest workers use 401(k)s to supplement their retirement income, acknowledged in a Jan. 2, 2017, article in The Wall Street Journal that the 401(k) experiment has been a failure.

• A 2015 Government Accountability Office (GAO) study found that 29 percent of Americans 55 and older don’t have any retirement savings or a pension. Those who do have a retirement savings plan don’t have enough money. For example, the GAO study finds that 55- to 64-year-olds have an average of $104,000 and those 65 to 74 have $148,000 in savings.

• According to findings by the National Institute on Retirement Security, the U.S. has a $14 trillion retirement savings deficit as measured by retirement account balances.

The truth is that there is a retirement savings crisis, and it is due to a massive shift from traditionally defined benefit (DB) pensions to do-it-yourself 401(k)-type retirement savings schemes.

Research by my organization indicates (a) that had there been no shift from DB retirement plans to defined-contribution (DC) plans, there would be no national retirement savings deficit, and (b) an analysis of empirical data predicts the dismantling of public-sector pensions in favor of 401(k)-type DC plans increases income inequality, drags the economy down and would inflict $3.3 trillion worth of damage to the national economy by the year 2025.

And to top it off, 401(k) plans cost more than pensions to manage, and are mostly available to well-to-do employees who have other retirement resources, rather than the working poor, who need retirement security the most.

From Hank H. Kim, Esq., executive director and counsel, National Conference on Public Employee Retirement Systems, Washington, D.C.