Failed Policy — The 401(k) Shrinks In A Growing Economy

Failed Policy — The 401(k) Shrinks In A Growing Economy

Disturbing new evidence that government policies are propelling us toward a poorer future turns up in a first-ever government examination of retirement savings plans like 401(k)s.

The report, from the Internal Revenue Service, shows that even though the economy is improving, the number of workers saving out of their paychecks for old age is shrinking. So is the amount they save, down 6 percent in real terms from 2008 to 2010.

Additionally, the number of Americans deferring part of their wages into 401(k)-type plans fell in 2009 and again in 2010.

Two-thirds of taxpayers with jobs saved nothing in retirement plans.

Among twenty-somethings, only 1 in 8 or so saved.

While chock full of important new facts, this pioneering IRS report has not prompted a single news report except for this column at The National Memo. How can it be that the major newspapers, wire services and broadcast outlets all missed this?

The answer is simple: Wall Street pours a lot of money into keeping financial journalists focused where it wants attention. That most certainly is not on groundbreaking first-time reports like this one from the IRSStatistics of Income division.

With the economy supposedly on the mend, we would expect to see the number of people saving part of their pay for old age rising, not falling.  And we would expect people to save more of their pay.

But the number of people with work is down, too, by 3.8 million from 2008 to 2010 as measured in the IRS report.

That the number of workers fell more than the number saving may seem like good news, but it misses the larger point that for more than a decade the U.S. population has been growing much faster than jobs.

Since 1999 the median wage, when adjusted for inflation, has been stuck at a bit north of $500 per week. Average wages have grown, but that is due to raises for those making $100,000 to more than $50 million, W-2 wage reports show.

The data also show that, to the extent Americans do have retirement plans, they tend to be used by older workers, who usually earn more and are not burdened by student loans.

Census surveys show that only a third of workers in their twenties have any form of retirement plan at work, compared to 62 percent of workers in their fifties.

But having a retirement plan and actually getting benefits are far from the same. Among all adult workers, only 43 percent say they have a vested right to either their own money they saved or money their employer set aside for them.

Workers are also being squeezed by health care costs, with reduced benefits, rising co-pays and various charges not covered by insurance.

Co-pays and unreimbursed charges are an inefficient way to cover health care costs, but they are promoted by the superfluous health insurance industry, which profits by denying claims or making it so difficult to get reimbursed that people often give up trying.

Those who tout small business as the engine of a better future should pay close attention to this detail in the IRS report:

The declines in the numbers of savers and the amounts saved were greatest for the two retirement savings plans offered by small employers. The number of workers saving through SEP plans fell 26.5 percent, and by 13.8 percent for SIMPLE plans, with slightly smaller declines in the average amounts saved.

Overall, the IRS report and other official data show how government policy that favors individual savings in 401(k), IRA and similar plans simply are not meeting the needs of workers, or of American society.

Tens of millions of Americans will reach old age without adequate financial resources if we continue with our three-decade-old experiment with defined contribution plans that shift all risks onto the workers. If we continue down this path, we will in time face a stark choice – greater burdens for taxpayers, a boon for the makers of cat food, or unconscionable deaths by starvation.

Making the private and public pension systems sound is a much less costly alternative for America than continuing down our current path of turning the 401(k) – begun as a supplement to enhance retirement savings – into our main vehicle for financing old age.

The 401(k) is not up to the task. The fees drain away too much, amateurs do not invest as smartly as professionals and savings out of your paycheck instead of having money set aside on top of it encourages too many people to focus on the bills due this month instead of when they are too old to work.

But until voters tell the politicians to fix the pension system and strengthen Social Security, the oligarchs and their highly paid servants in both finance and the policy-formulation business will benefit while everyone else gets stuck with the burdens.

Photo: “401(K) 2012” via

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