Setting effective retirement plan policy can be a tricky business, but when those policies are based on false assumptions or misunderstandings… well, that can be a real problem.
We asked readers to vote on the biggest misunderstandings, specifically those that are least accurate.
The top vote getter was that tax preferences for 401(k)s are a tax deferral, not a tax exclusion, such as that for health care benefits, or the mortgage deduction. Sure, those tax preferences can extend past the 10-year budget window used by Congress for evaluating budget proposals — but that artificial barrier doesn’t alter the reality that 401(k) tax preferences only hold until the monies are withdrawn — at that point, the deferred taxes come due.
A close second in this week’s polling was the misunderstanding that employers will sponsor these plans no matter what changes regulators impose. Because, as those who work with employers know, the costs and regulatory burdens imposed can weigh on the decision to offer these plans in the first place, not to mention continuing to do so.
In third place, readers placed the notion that government (state or federal) sponsored programs are the solution to getting people to save for retirement, while coming in fourth was that “an average 401(k) balance tells us anything meaningful about the retirement readiness of the general population.”
Fifth place went to the misunderstanding that tax preferences for 401(k)s are “upside down,” while “the match doesn’t matter in encouraging participation” rounded out the top categories of our poll.
Other misunderstandings ranked were:
- Individuals don’t care about tax advantages when it comes to saving.
- You can solve the retirement savings problem by plugging leakage (barring loans and pre-retirement withdrawals).
- All target-date funds are alike.
- A $3 million retirement savings cap won’t impact many people.
- Gen Xers’ retirements will be worse than Boomers’.
- That the plan sponsor hopes that the product or services will lessen their retirement burden!
Thanks to everyone who participated in in our NAPA Net Poll!
