Despite (or maybe because of) SECURE 2.0’s passage, 401(k)s face increasing attacks, with the latest salvo coming from an opinion piece published in Politico.
Social Security is just one part of the retirement system, notes the provocatively titled “Before Slashing Social Security, Cut 401(k)s.” Talk of cuts to the others, including defined-benefit (DB) and defined-contribution (DC) plans, rarely occurs—something author Matthew Bruenig, founder of People’s Policy Project, argues should change.
Claiming 401(k)s are overwhelmingly skewed toward the rich, while lower income workers rely more on Social Security, he makes no mention of the massive coverage and credits boost contained in the recent legislation, many specifically geared to small businesses and lower-wage employees.
Non-discrimination tests and legal contribution limits work (as designed) to keep an effective balance between the benefits of higher-paid and other workers. Data proves that while higher-income individuals have higher account balances, those balances are roughly proportional to their incomes.
While tax incentives for retirement savings for higher-income people are greater, it’s because their marginal tax rates are also higher. Tax incentives for businesses exist to ensure plan implementation in the first place. Without them, employers are far less likely to offer a plan, resulting in even fewer options for workers to save.
Social Security, while popular, is a perennial source of solvency controversy and concern, with studies routinely detailing the anxiety younger generations feel over benefit cuts or receiving no benefits at all.
Absent Congressional action, Social Security would be depleted in 2034, after which the program would pay 76% of benefits. It’s one reason that one in four younger workers say they don’t expect to receive Social Security at all, according to a study by Northwestern Mutual.
The Politico opinion piece seems to suggest that cutting employees' private-sector retirement benefits by taxing 401(k)s more would somehow reduce their fears.
It then focuses on the “gusher of cash” the financial sector receives in fees, again making no mention of the steep drop in fees, the issue of fee compression with which the industry currently grapples, or the plethora of low-fee and no-fee products seen in recent years.
The piece instructs readers to disregard opposing views, suggesting anyone arguing against 401(k) cuts is “unserious” and “motivated by things other than a sincere concern for retirement finances.”
American Retirement Association CEO Brian Graff responded, noting several critical points Bruenig ignored.
"It’s based on an untterly flawed tax policy analysis," Graff said. "It ignores among other things, the impact of the nondiscrimination rules, the fact that the tax incentive for retirement savings for higher income people is greater because their marginal tax rates are higher—duh, and the fact that moderate income workers, particularly younger workers, are increasingly making Roth contributions, and therefore not getting any current tax benefit (although definintely a long-term one) which is entirely ignored by the analysis cited as the justification for the author’s proposal."
