You don’t need to pull a brain muscle to come to the conclusion that our political system has some serious issues.
It’s not exactly an original thought that our politics are corrupted by money and special interests.
But the fact that a point is obvious has never stopped me from making it before. So here goes.
I have a policy idea that should be universally accepted.
Conservatives should flock to it. After all it is nothing if not free-market. It requires no new taxation and no new spending. And it’s all about “freedom,” which seems to be all the rage amongst the tea party set.
It’s an idea that is true to my conservative ideals…
Liberals should be clamoring for it. You see it is very pro consumer and pro average Joe. It empowers every man to make his own choices and is an antidote to the country club deals that so often sell workers down the river.
What is this breathtaking idea?
You should probably sit down. It’s pretty exciting.
Allow workers to put their own 401(k) money wherever the hell they want.
Our 401(k) system was in its very conception a step back for workers. After all it was conceived as a way to allow employers to make fixed contributions to workers retirements without being on the hook for defined benefits in the future.
In the old days pensions were more like Social Security. A worker worked a certain number of years and then got a defined amount of money guaranteed as income each year of his or her retirement.
These days companies just set up 401K plans for their workers and (sometimes) contribute matching funds into the plan.
If the worker doesn’t contribute enough or doesn’t plan well or doesn’t invest well, it’s not the company’s problem, it’s the workers problem.
But that’s water under the bridge
My argument with the whole system is that the workers retirement money becomes trapped within 401(k) plans designed entirely by the employer.
The board or individual that runs the 401(k) plan for the company determines the entire universe of investment options for the companies’ employees’ retirement money.
So if the guy making the decisions about what options are available in the 401(k) plan is not terribly bright, or susceptible to bad arguments by a financial advisor, or maybe even a little corrupt, then all of the employees are stuck with his bad decisions until they turn 59 1/2, or leave their jobs.
What kind of bad decisions can such a 401(k) director make? How about choosing all high-cost funds? Or all actively managed funds?
As we discussed in this post, an additional 1% per year in expense ratios on mutual funds will mean a loss of one third of one’s portfolio value after 40 years of work. Why should an employee lose one third of her own retirement salary due to a bad decision made by her employer?
My solution? Simple. Allow employees to move their money out of their 401(k) plans and into a self designed 401(k) plan with any broker at least once per year.
If they want to keep it in the employer plan, fine. But at least they’ll have the ability to make their own retirement decisions should they so choose.
If you believe in the free market why would you not want every individual to be in control of their own money?
If you represent workers, why would you allow their retirement to be subject to the poor decisions of their employers?
I think there are a few answers to these questions.
1. “Universal 401(k) freedom” is not exactly a catchy campaign slogan.
I’ve seen more inspirational political posters
2. Financial education is practically nonexistent in our schools so retirement does not concern most voters until it is too late.
3. Everyone believes in free markets right up until it is their own market that is opened up. Then they believe in monopolies. And who owns the 401(k) market? Wall Street.
Newsflash: Wall Street has a lot of money.
And in Washington money is speech, so actual speech becomes drowned out.
And so the rarefied interests of the financial elite block commonsense solutions for the rest of us.
So write your congressperson, whether they’re conservative or liberal. Demand 401(k) freedom and demand it now.
Or maybe we should work on getting the money out of politics?
