Oh, it never ends, except I’m mildly encouraged by this: They’re resorting to old, dead memes for new furors, which tells me they’ve lost traction on the majority of the health care reform lies. That much, at least, is good.
Let’s just kill this right now, okay? Last October, Teresa Ghilarducci testified before the House Education and Labor committee. Her testimony about just how much employees have lost as a result of shifting retirement benefits from an employer-funded benefit to an employee-funded benefit sent shivers down the spines of every Republican with a Twitter account or a blog, and they scurried to inform all of us poor schmucks that if Obama were elected, our 401ks and pensions would be taken away from us, and we’d be forced to save for retirement through Social Security.
At the time, they failed to note that testimony was heard from many people, not simply Dr. Ghilarducci. And, once again, they ratched up the hysteria without really paying attention to the underlying problem or offering solutions.
The problem
Because of last year’s crash, Bernard Madoff, bank failures, and mortgage defaults, pension plans are in deep trouble. If you have a 401k plan, you’ve seen how much trouble they’re in. Mine lost about a third of its value, and I was in fairly stable, ordinarily solid investments. When you’re 20, losing a third isn’t a huge big deal. When you’re 50, it hurts.
Because of the economy, many companies offering a match for 401k plans stopped the match to keep their balance sheet above water.
401k plans are a cost-shifting mechanism. They’re intended to place the onus for retirement savings on workers. That in itself is not a bad thing, necessarily, except that it also shifted the idea of retirement savings from working toward a benefit to working toward a balance. That balance depends on several factors: 1)relative market stability; 2)that employees have at least a rudimentary understanding of investment vehicles, the markets, and diversification; 3)ability and willingness of workers to save enough to actually provide a pension for themselves at retirement; and 4)wages which rise in step with inflation so that amounts saved as a percentage of pay represent the necessary savings to keep ahead of the inflation rate.
None of those four factors exist. At this time, wages have not kept pace with inflation (largely because of health insurance benefit costs, by the way), workers do not understand how the investment markets work, workers are not saving a significant enough amount to provide a secure retirement, and no market has been stable.
All of the rules around investing were broken, largely because of a fast and loose regulatory environment.
Workers face a two-pronged loss
The two assets which most people rely upon for retirement are their 401k and their home. Home values have plummeted. Scams, mostly aimed at retirees, have devastated the accumulated value of their home, and the market has taken care of a good chunk of their retirement accounts.
Congress looks for answers
It’s important to note that the largest chunk of responsibility for the condition of workers’ 401k accounts rests on the shoulders of the thieves on Wall Street, including AIG and their cohorts. Goldman Sachs is not exempt, either, despite their insistence to the contrary. Employees invested in mutual funds, bonds and stocks in good faith that those investments were regulated and carefully monitored — that they were safe when in fact, they were not.
So Congress heard testimony. They heard testimony from retirees. They heard testimony from investment advisors. They heard testimony from an expert on 401k participant behavior about how participants tend to buy at peak times and sell at the bottom. (This is absolutely true, I see it in my own work as well).
Somehow one hearing turned into a government takeover
This is how the lies flow through and into the 6 o’clock news, where serious-looking anchors will stare into the camera and lead the story with the lie, then balance it with their equally serious-sounding statement from Congressional leaders, framed thus: “Congress said it has no intention of turning 401k plans into Social Security.”, sending the message to rapt viewers that it was surely something on the table that they should worry about.
In fact, reforms are necessary. However, they are much more likely to take the shape of reforms I wrote about at the time the first rumor was unleashed.
More on 401(k) plans, investing and markets:
