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Was the 401(k) a Mistake? How an obscure, 45-year old tax change transformed retirement and left so many Americans out in the cold. (www.nytimes.com)

submitted 6 months ago by Blaze@reddthat.com to c/personalfinance@lemmy.ml

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[–] Copernican@lemmy.world 3 points 6 months ago (1 children)

But the point is we can't trust personal responsibility. If a significant volume of the population is basically guaranteed to not invest and save voluntarily for retirement that is always going to be a social problem. Also, there's the problem of employers voluntarily providing retirement programs. Sure, I think there's a question of what or how that savings is invested for retirement (pension, 401k, etc), but it seems there needs to be more mandate to require employer's of a certain size to support retirement plans. And possibly even more mandate to require contributions to retirement plans. The article describes this in Australia: "Australia’s Superannuation Guarantee requires companies to contribute the equivalent of 11 percent of an employee’s monthly pay to an investment account that is controlled by the worker, who can also put in additional money. The “Super,” as it is known, includes full-time and part-time workers and has proved to be enormously successful. With its relatively small population — just 27 million — Australia now has the world’s fourth-highest per capita contributions to a pension system, and almost 80 percent of its work force is covered."

[–] sugar_in_your_tea@sh.itjust.works 1 points 6 months ago* (last edited 6 months ago)

it seems there needs to be more mandate to require employer’s of a certain size to support retirement plans

Pretty much all companies over a certain size support retirement plans, that's not really the issue. The issues are:

employees don't enroll: solution - enroll by default
small companies can't afford the nice plans: solution - allow them to use the IRA, which have better funds anyway
employees don't understand the plans they have: solution - simplify retirement plans

The reason the 401k is so complicated is because brokerages want to keep it that way. They literally get paid to "customize" a plan for the company, but what that really means is charge a ton for compliance paperwork nonsense and limit options. A lot of the crappier plans have super expensive funds and are almost worse than forgoing the tax break and just investing in a regular brokerage account.

Australia’s Superannuation Guarantee requires companies to contribute the equivalent of 11 percent of an employee’s monthly pay to an investment account that is controlled by the worker, who can also put in additional money.

Yeah, that's pretty much what I'm talking about. Extend the IRA (already exists) to allow employer contributions (like the HSA) and increase the limit to match 401k limits. Then eliminate the 401k, 403(b), and a handful of others to just use the IRA that employees already control. This does lose some features, such as loans, and I suppose those could be supported by IRA plans if wanted (ideally, loans against retirement plans wouldn't be allowed to prevent people from shooting themselves in the foot).

The big retirement firms are going to fight tooth and nail though, just like Turbo Tax fights against tax simplification. But that would get us 80% of the way to what Australia has. The last 20% is a minimum contribution, which I think isn't needed, and instead we should try using defaults (e.g. contribute 5% for new hires, 1% for existing hires minimum by default, and increase 1% per year until 10% or whatever). A lot of companies already have a matching program that works well, and it's honestly not worth fighting companies over what the minimum should be.