Mandatory 401(k)s? Join the Debate With Our Readers
Reader response to my recent column about mandatory 401(k)s was both swift and passionate.
"Absent a mandatory 401(k) system," I wrote, "those who don't plan for their own retirement surely will be a burden on others." Among other tactics, I suggested that all employers should offer a 401(k) plan, that all employees be automatically enrolled, and that all workers should be required to make a pretax contribution to their accounts.
Some readers liked the general approach but feared it isn't enough to secure retirement for many workers. "I like that both employee & employer contribute, but 3% each isn't going to be enough," says one gentleman from Maryland, adding, "What is important is that whatever system someone chooses, the appropriate regulations are put in place to ensure what has happened to pension systems in the past and our Social Security system is never allowed to happen again."
Other readers objected more strenuously and worried that my mandatory 401(k) system amounts to a second, flawed Social Security program. One reader from Massachusetts wryly opined, "Great idea! [And] to soften the clinical, robotic, mechanical, numerical, description of 401(k), let's humanize it and call it. . . Social Security!"
Check out a few of the other voices that have joined the debate, then weigh in yourself in the Comments box below:
Is Kiplinger Accusing Companies Without a 401(k) Match of Being Unethical?
Just curious how a company not paying a 401(k) match is not ethical? Are they overpaying in salary? Do they have other benefits that far exceed a 401(k) match? Is it ethical to tell a company that they should be saving for their employees' retirement but not looking after their shareholders? Isn’t the decision really a financial one, not an ethical one? -- S.S., Naperville, Ill.
A quick response: It’s a perfectly ethical position for a company to tell its employees that their retirement security is all their own challenge, and not to expect any help from the company -- no 401(k) contribution or match, no pension of any sort, nothing. That would strike me, as a CEO, as a short-sighted stance that could make hiring difficult and send a negative message to employees, but it’s a perfectly ethical business decision, as you suggest.
Mandatory 401(k)s as a Burden on Business
You are a bleeding liberal [to think] that government can take care of ALL the problems of society. Your essay oversteps the bounds of the U.S. Constitution by mandating that "every employer of every size would be required to offer a 401(k) plan." You have no problem "solving" the troubles you see, yet stealing the American citizen's liberty of free will and choice.
Your [plan] would add yet even more burden to business and most likely stifle growth and hiring further. I anticipated your default investment choice of "lifecycle" products since your essay is nothing more than the "dumbing down" of the American employee and investor.
You, Mr. Kiplinger, are out of touch with the American worker. -- B.Y., Auburn, Ala.
No More Bailouts
I’m accustomed to editors and other media being “nanny-staters,” so I was not surprised to read Knight Kiplinger’s call for a mandatory 401(k) plan.
Getting bailed out for not being responsible is one of the reasons our nation is in decline. Aside from that, such a plan would result in fewer businesses and accelerate our movement toward a European-style socialist approach with permanent higher unemployment and national decline. The top ten percent of the population pays almost all our costs now. Ireland, Greece and our own situation should be ample evidence that we cannot have more “takers” than “makers” and prosper. We’ve been splurging for too long, and I’m afraid we’ll have to go through some difficult times before we can experience good times.
I congratulate Kiplinger’s for having a Safe Harbor Plan with auto-enrollment. But employers should establish plans for the classic reason: to attract, retain and reward good employees. -- M.O., Wichita, Kan.
More Flexibility, Fewer Mandates
I think your article misses on many points. One of the many reasons 40% of private-sector workers don't have access to a retirement plan is because they work as contractors and are not employees. Contractors can not contribute to a 401(k) plan. Mandating employers to offer coverage to employees will not help a significant percentage of workers get access to a 401(k). . .
Where I disagree most, and what prompted my reply to your column, is the section about early withdrawals. Social Security already has mandatory restrictions on retirement age -- no retirement benefits before age 62. Disability income may be available, but the determination of disability can take years, during which the patient may already have passed away. Your proposal says no withdrawals from a 401(k) before age 65. Do you realize that there can be many legitimate reasons why somebody might want to retire before age 65?
I started working, and contributing to a 401(k) at age 19. I'm 34, and I don't expect to live to age 65, or even to age 62, due to a medical condition. My life expectancy is closer to age 55. I will never collect a cent of Social Security retirement benefits. I may collect [Social Security disability benefits] if I become disabled and don't die before the determination is made. I am still working and am paying the maximum amount of Social Security taxes every year, as I have been since about age 22. I do plan to retire, well before age 62, and well before my medical condition might cause me to become disabled. My 401(k) today is part of that early retirement plan. . . Please don't advocate for making the 401(k) even stricter.
401(k)s are private retirement plans which entail some flexibility on the part of employees/retirees. They should not be confused with mandatory plans like Social Security which have less flexibility. One size does not fit all. -- J.P.
We Don't Need Two Social Security Systems
Mr. Kiplinger calls for mandatory 401(k) plans for all workers. He would require all employers and employees to contribute to a lifecycle-type asset allocation fund which would be paid out like an annuity in retirement.
After Washington legislators got done with it, I would not be surprised if they wouldn't require a certain percentage of the funds to be invested in government bonds. And that, dear friends, is what we have right now. It is called Social Security, and it is bankrupt.
We do not need two Social Securities! -- D.K., Racine, Wis.
Whatever the Retirement System, Just Make It Safe
Although I agree that what Mr. Kiplinger proposes is better than the current 401(k), the article opens many other questions. I like that both employee and employer contribute, but 3% each isn't going to be enough to retire on. What would the non-default investment options be? It seems highly likely that there will be better investments than U.S. stocks over the next 100 years, so how much diversification would be allowed? What if we enter a Japan-like period where the stock market has gone down and not recovered for 20 years?
Also, if the employer is going to contribute (whether or not the employee has to contribute), why not just have a regular pension system (with laws requiring they be fully funded at all times)? By pooling the money, it seems the amount of money lost to various fees would surely be lower than by having millions of individual accounts.
At the end of the day, I doubt there will ever be a one-size-fits-all retirement solution. Different people will be drawn to different systems for their own reasons. I think what is important is that whatever system someone chooses, the appropriate regluations are put in place to ensure what has happened to pension systems in the past and our Social Security system is never allowed to happen again. But that is another article. -- D.G., Arnold, Md.