A recent study advocating for more government intervention in private retirement marketplaces makes a few questionable assumptions, Nevin Adams writes in the Fall 2015 issue of NAPA Net the Magazine.
Adams critiques the findings of professors Ryan Bubb and Patrick Corrigan, who authored “A Behavioral Contract Theory Perspective on Retirement Savings,” which asserts that plan features such as employer matches and automatic enrollment, combined with a shift away from defined benefit plans, are worse for participants than a federal DC plan that wasn’t connected to employment. Adams says that the paper wrongly assumes that employer-based DC plans take advantage of “naïve” or “myopic” workers, who falsely believe that the automatic contribution rates of their plans, and employee matches, will allow them to adequately save for retirement.
Adams casts skepticism on the authors’ claims that a government-run retirement plan would mitigate these “problems,” arguing that any notion that employer matches could be harmful to workers is false. He writes that the authors are off-base when they assert that employer matches actually undercut overall employee compensation, noting that contributions allow companies to meet certain safe harbor benchmarks so that they can offer even better tax-advantaged compensation to their workers.
The authors’ solution of replacing the private retirement market with a federally run plan makes sense only if you assume everything will work perfectly with implementation, Adams says, while also assuming the worst of employers. This suggestion wouldn’t “survive serious scrutiny outside of the rarefied air of academia,” Adams writes, though he notes that worse ideas have.
“Oh, and not only do they claim that this could improve savings outcomes, but that it would do so “at little to no fiscal cost to the government,’” Adams writes of the report’s authors. “Except, presumably, for the part where the government trades the temporary deferral of tax revenues for the permanent forgiveness of a government tax subsidy.”
In addition to Adams’ regular “Inside the Numbers” column, the Fall 2015 issue of NAPA Net the Magazine inaugurates NAPA’s lists of the top women advisors in the industry in four separate categories. Judy Ward also discusses the potential pitfalls of managed accounts, while Nevin Adams debuts his new “Polling Places” column highlighting some readers who shared their experiences with the client firing process. The issue also features insights from contributors Jerry Bramlett, Warren Cormier, David Levine, Brian Graff, Don Trone, Steff Chalk, Joseph DeNoyior, Jania Stout and Fred Barstein, along with the debut of columnist Lisa Greenwald Schneider.
To view Adams’ column, click here and select “’Blind’ Sighted.” And to view a pdf of the full 52-page issue, click here.
