Part III - Why 401K's are NOT the Solution

So, the state of Utah has been putting insufficient money into its pension plan? and now there isn’t enough money there to meet upcoming liabilities.

And the solution here is for the state, in future, to contribute “roughly half” of what it’s been spending up until now in pension contributions.

Needless to say, this makes no sense on either front.

The liability to existing workers doesn’t go away if a different plan is adopted for new workers, so the problems at the pension plan aren’t being addressed.

On top of that, it’s hard to see how contributing much less to new workers’ retirement is going to help them at all, either.

From a pensions perspective, there’s no winner at all: the only entity better off is the state, from a cashflow perspective.

401(k) plans are a bad deal for taxpayers.

Dollar for dollar, a traditional pension plan yields more pension benefits than do 401(k) plans because 401(k) management and investment fees are three times higher.

The only clear winners when pensions switch over to the 401(k) plans are brokers and bankers…

The unintended effect of widespread 401(k) plans is more volatility. In contrast to traditional pensions and Social Security, 401(k) plans fuel bubbles and make recessions worse.

When the economy is booming, 401(k) plan asset values soar, making people spend more and work less. Not what you want in an expansion.

Worse, when the economy plummets and takes 401(k) assets with it, people do the opposite; they cling to the labor market and rein in spending – again, two things you don’t want in a recession.

For rich professionals who jump from job to job every few years, 401(k) plans do make a certain amount of sense.

For public servants spending a lifetime in the police force or in elementary schools, by contrast, they emphatically don’t.

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