What’s Wrong With 401(k)'s?

Brokers Get Rich. The Rich Get Tax Breaks. And the Little Guy Gets No Pension.

It's possible to go a bit further without upsetting the Wall Street apple cart. A proposal originating from the Century Foundation several years ago sought to create an independent fund, managed by a new separate government agency and totally unconnected to the Social Security system.

In the current atmosphere in Washington, it's hard to imagine this scheme going anywhere, but it could be implemented on the state level. In fact, the Economic Opportunity Institute in Seattle has put together just such a fund. It has been introduced into the state legislature and so far enjoys wide bipartisan support. So far it is not opposed by the mutual fund industry because it is aimed at small businesses and lower-income people, which the big players don't want anyway. Under the Washington proposal, you could ask your employer to withhold a certain amount of your paycheck, which would go into the state retirement fund where it would be commingled with other funds in a sizable investment pool. Since the retirement system is public government—not private business—and open to scrutiny by the state legislature, there is at least an avenue for ordinary citizens to have some say, and at the very least find out what's going on. Investment advice is organized by the state, which may ask mutual funds and other institutions in the finance industry for help, but the investment companies won't have quite so free a rein as now.

Washington State is expected to undertake a study of how it might work, and maybe place it in operation around 2005. This model could be taken up by different states, which in due course might forge a new system.

In the meantime,there are groups outside the government and private business which are finally beginning to attract interest—such places as the Pension Rights Center and Edwards's Coalition for Retirement Security. A Consumer Reports-style publication that explains and rates mutual funds and other managers of 401(k)'s would be a big help. Currently the only information and explanation comes through ads and the financial press, which are enmeshed within corporate America and often compromised.

A real pension doesn't have anything to do with the stock market or whether it's good or bad for a corporation. Properly constituted, a pension is a device to provide a decent amount of money for older people in retirement. It is the job of civil society to provide seniors such means of living as a right, just as a civil society should provide universal health care as a right. It's a province of public government. Economic powers in the United States oppose these goals, and history suggests they will be hard to achieve. But that doesn't make them any less necessary.

Additional reporting: Gabrielle Jackson

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