Guest Editorial: More workers need 401(k)s
With the old-fashioned company pension now an endangered species, what besides Social Security will support Americans in retirement?
For many, the answer is a 401(k). The retirement accounts are offered by employers, but workers decide how much money they want to save. The amount is deducted automatically from their paychecks on a pre-tax basis, meaning the savings are taxed only when later withdrawn from the account, typically during retirement. Workers have a say in how the plan administrator invests their savings, and employers have the option to contribute to their employees’ accounts.
Given these advantages, many Americans swear by their 401(k), but not enough get the chance to have one. Too often it’s because they work for small companies that can’t afford the accounts’ maintenance costs.
For that reason, President Barack Obama will ask Congress, as part of his 2017 budget proposal, to make it easier for small businesses to provide 401(k)s. The administration believes that half of the 31 million people who work for an employer with fewer than 50 workers don’t have access to a retirement savings plan.
If lawmakers OK the president’s plan, rules on 401(k)s will be relaxed so that small businesses, even in unrelated industries, will have an easier time forming multi-employer savings plans to bring down costs. Companies with existing plans will be encouraged to offer them to long-term, part-time workers, in the hopes that they, too, will save for the future. Not so helpful is the Obama provision to hand out tax credits to employers that add 401(k)s; despite the merits of greater personal savings, the government needs to keep a lid on revenue giveaways.
Last summer a Federal Reserve Board survey revealed a shocking statistic: One-third of American workers have no retirement savings. Since there’s nothing Democratic or Republican about an empty passbook, lawmakers of both parties need to get behind efforts to help more workers save for themselves.