A Better Retirement

A modest proposal- cancel all retirement plans.

The US retirement system is a mess. It is grossly unfair, in that employers can choose whether to offer retirement benefits or not, with employees not able to say much about it. Whole fields of employment may have defined pensions or their miserable cousin, the 401K, or nothing, with little rhyme or reason. Workers unwittingly enter fields that either do or don't offer retirement benefits, for all sorts of unrelated reasons of interest and talent, and wind up forty years later either made in the shade, or dumpster diving. We need a better way.

Employers also are mistreated by the current system. Some misers offer the stingiest 401K (no, or token matching), while others offer generous defined benefits. The latter can be destroyed by their pension obligations if they undergo contraction in the ever-changing business landscape, rendering them disasterously uncompetitive against younger companies without large pools of retirees. Among 401K plans, the degree of matching is highly variable, presumably a gauge of labor power in that company or industry, with results that only come out in the wash when the worker is later hung out on the line.

This hidden part of pay packages should, like health insurance under the Obama reforms, be made more uniform, and also be brought into the light by a few fundamental reforms.

First would be to cancel all non-Social Security retirement plans offered in the US, whether by private or public entities. Retirement is not a job for the workplace. Instead, Social Security should be doubled, to provide a uniform and stable base to the retirement of every working American. Despite all the scare stories, there is plenty of scope to beef up Social Security, by raising the cap of income levels that are taxed, and increasing the tax rate.

Second would be to eliminate the employer role in 401K plans. If a company wants to pay employees more, it should put that in the top line of salary, while the employee takes responsibility for the saving, the investments, and the tax deduction. All employees should be treated equally, not given more or less money based on whether they wish to save. Employees would still be able, however, to get their desired savings automatically deducted from their paychecks. The switch would by law put the money previously hidden in retirement benefits into the employee's top-line pay.

For instance, an empoyee might decide to save 10% of income automatically from her paycheck, and have it sent to a specified investment account. Her company would pay her the extra 10% that it previously paid in matching 401K contributions. The employee would take over the tax benefits, being allowed up to $20,000 of annual income to be counted as pre-tax toward this 401K/IRA. The government would offer all workers a social-security-grade account to invest these savings, (as inflation-protected bonds), in case they don't want to gamble it at the Wall street casino, and might also insure special bank savings/CD accounts if desired.

All this would go a long way towards decoupling retirement from the corporations and other institutions we work for. They don't want to worry about our retirement- they have better things to do. They have also been willing to underfund and raid these retirement accounts. Retirement is just too important (and far too long-term) to leave to employers.

The paternalistic model of employment needs to be put out of its misery, instead of penalizing those employers with moral scruples. Companies deserve a level playing field where they compete on their productivity, and attract workers based on transparent offers of compensation. Such reforms will also promote workplace mobility, lowering the need for workers to wait out bad employment situations for their promised retirement. The various fiascos of early retirement programs (allowing retirement at 55, even 50) would no longer be an issue, since no one would get defined benefits that could be arbitrarily granted and started at early times.

Lastly, this proposal would also resolve the public pension crisis, which is truly dire. As investment returns head downwards in our Japan-decade, the extravagant promises made to public employees by various well-meaning but undisciplined public entities have become unsustainable, hollowing out municipal and state public services. This albatross of needs to be cut from our necks by clawing back promises that were so rashly, and sometimes corruptly, made. These costs should be transparent on the top line of salary, not in the sticker shock of hidden crises bequethed to future generations. Public employers need to get out of the retirement business as soon as possible, and into a fair, transparent, transportable, worker-centered system.

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