This is an utterly terrible idea. And it will pass for 2 reasons:
1) It fits with the dominant consensus that more choice is always better and constraints on choice presumed illegitimate unless they harm other people.... AND
2) It benefits the ruling class and wealthy enormously by giving them access to a ready group of ill-prepared but relatively deep pocketed investors.
The dirty secret of DB plans is they aren't actually defined, at least in the public sector. Private sponsors of DB plans are constrained by ERISA but most of the action these days is in the public sector. Truth is that many (most?) plans have reduced benefits for people already in the system or even already retired. And courts have usually denied contract clause challenges. So a defensive investor depending on a DB plan is simply fooling themselves. As an aside, the argument about a government being immortal, while true, is often deployed as an rationale to underfund a plan, leading to crisis and benefit cuts down the road.
Very well-argued. I like the idea of just scrapping tax-favored investment plans for something like a beefed up Social Security. But then, in a few years, conservatives will be railing against those “freeloaders” whose investments ought to be making ,it’s of money for their contributors.
As always powerful thinking from Michael. The core of the issue is how the "nation of investors" concept has created instead a nation of gamblers and how their choice is entirely rational. My ex boss shared how, as a teenager in Germany, he realized that if every German sent him just 5 Marks, he would become substantially wealthy. The challenge was convincing every German to do so. Modern day financial industry successfully solved that challenge. While each retail brokerage or crypto balance is low (total medium is less than $50k and many are much smaller) together they make an enormous AUM that makes fee income or market returns to handlers. From the balance owner perspective, investing this $50k defensively would turn it into $100k in 15 years. Hardly life altering. But putting it into a meme stock might produce $500k or more tomorrow. And if all of it is gone - there is social security. Retail investing outside 401(k) is now effectively this kind of lottery.
So why should the same lottery be subsidized by tax is the right question indeed.
401K's need alternative investments like the country needs a hole in the head. Even the choices in most 401K's are mind boggling and the average Joe or Jane contriubtor has no idea how to allocate funds. Just look at target date plans for proof. If I were running a plan, participants would have a choice of index funds and that would be it.
I am not sure that I understand why you believe this key statement to be true:
“ Social Security beats a defined benefit pension invested in stocks, bonds, and other assets, while a defined benefit pension beats a riskier defined contribution pension.”
Remove the ‘accredited investor’ nonsense we have in this country, but don’t completely turn 401k plans into casinos.
I’m the manager of my companies plan. I added a Personal Choice Retirement Account (PCRA) option just over a year ago, so I could invest outside of the limited choices, and particularly in Bitcoin ETFs. Out of 50+ participants, I’m still the only one using it. Most people are risk averse, often to their long-term detriment, but without proper education (which we sorely lack) they’ll just gamble, if pushed to take risks. Look around.
And word to the wise, all ‘crypto’ notcalled Bitcoin is a scam, whether sooner or later.
This is actually a good idea. It has no effect on me, I'm retired, but as an idea it would be much better to scrap the entire system of defined and contributed benefit plans as well as the tax breaks involved. A strong Social Security that actually pays enough to retire on funded by regular taxes on everything and cut out the payroll taxes.
Would Americans have the fortitude to tax income and corporate enough to pay a generous Social Security? Get rid of many of the other loopholes too. Mortgage deduction and tax free medical.
America is an extremely rich country, one would think we could work out a way to pay for retirement and health care.
Assets in private hands are not necessarily “mad money”.
The regulatory burdens of being publicly traded have caused many great businesses to access private, rather than public, capital. As a result, ordinary people cannot buy a share of those great businesses. Their only path to buy a share is through a private equity or venture capital fund.
Consequently, the rich, qualified investors in those funds benefit relative to Jane Q. Public.
It would be far better to make it easier to be public, and harder to stay private, so that ordinary people can own shares in those great now-private businesses.
The breakdown of extended families living together and directly producing their own sustenance made it necessary for modern economies to provide sure sources of money to sustain no longer needed workers. Absent SSI and 401k plans the vast majority of Americans would end up destitute and wholly dependent on public relief. If you accept that fact then it becomes clear safe is a better goal than more. As a general rule, I try to stay away from people who are appealing to my greed.
The "new" right apparently cares more about limiting our retirement accounts than limiting the presidents crypto account. As Don repeatedly sells out the national interest to personally pocket billions, the silence of the "new" right establishment remains deafening. History tells a consistent tale of the economic performance in nations that countenance corruption and pay to play. Maybe AC could muster an opinion? Or, are they worried Don might come for them like he has come for so many others? Sadly, the silence of elites in such periods is another lesson from history. We're repeating it.
I went to work at an asset management firm in 1986 just as conversions from DB to DC was happening. The sales pitch to the DB plan sponsor was about eliminating risk and administrative burden from them. On the other hand we had to give participants instruction on how to allocate their accounts into which mutual funds. It struck me how absurd it was to give the same presentation to the CEO of a large grocery chain and the guy whose job it was to wet the lettuce.
This is an utterly terrible idea. And it will pass for 2 reasons:
1) It fits with the dominant consensus that more choice is always better and constraints on choice presumed illegitimate unless they harm other people.... AND
2) It benefits the ruling class and wealthy enormously by giving them access to a ready group of ill-prepared but relatively deep pocketed investors.
The dirty secret of DB plans is they aren't actually defined, at least in the public sector. Private sponsors of DB plans are constrained by ERISA but most of the action these days is in the public sector. Truth is that many (most?) plans have reduced benefits for people already in the system or even already retired. And courts have usually denied contract clause challenges. So a defensive investor depending on a DB plan is simply fooling themselves. As an aside, the argument about a government being immortal, while true, is often deployed as an rationale to underfund a plan, leading to crisis and benefit cuts down the road.
Very well-argued. I like the idea of just scrapping tax-favored investment plans for something like a beefed up Social Security. But then, in a few years, conservatives will be railing against those “freeloaders” whose investments ought to be making ,it’s of money for their contributors.
As always powerful thinking from Michael. The core of the issue is how the "nation of investors" concept has created instead a nation of gamblers and how their choice is entirely rational. My ex boss shared how, as a teenager in Germany, he realized that if every German sent him just 5 Marks, he would become substantially wealthy. The challenge was convincing every German to do so. Modern day financial industry successfully solved that challenge. While each retail brokerage or crypto balance is low (total medium is less than $50k and many are much smaller) together they make an enormous AUM that makes fee income or market returns to handlers. From the balance owner perspective, investing this $50k defensively would turn it into $100k in 15 years. Hardly life altering. But putting it into a meme stock might produce $500k or more tomorrow. And if all of it is gone - there is social security. Retail investing outside 401(k) is now effectively this kind of lottery.
So why should the same lottery be subsidized by tax is the right question indeed.
401K's need alternative investments like the country needs a hole in the head. Even the choices in most 401K's are mind boggling and the average Joe or Jane contriubtor has no idea how to allocate funds. Just look at target date plans for proof. If I were running a plan, participants would have a choice of index funds and that would be it.
I am not sure that I understand why you believe this key statement to be true:
“ Social Security beats a defined benefit pension invested in stocks, bonds, and other assets, while a defined benefit pension beats a riskier defined contribution pension.”
Remove the ‘accredited investor’ nonsense we have in this country, but don’t completely turn 401k plans into casinos.
I’m the manager of my companies plan. I added a Personal Choice Retirement Account (PCRA) option just over a year ago, so I could invest outside of the limited choices, and particularly in Bitcoin ETFs. Out of 50+ participants, I’m still the only one using it. Most people are risk averse, often to their long-term detriment, but without proper education (which we sorely lack) they’ll just gamble, if pushed to take risks. Look around.
And word to the wise, all ‘crypto’ notcalled Bitcoin is a scam, whether sooner or later.
This is actually a good idea. It has no effect on me, I'm retired, but as an idea it would be much better to scrap the entire system of defined and contributed benefit plans as well as the tax breaks involved. A strong Social Security that actually pays enough to retire on funded by regular taxes on everything and cut out the payroll taxes.
Would Americans have the fortitude to tax income and corporate enough to pay a generous Social Security? Get rid of many of the other loopholes too. Mortgage deduction and tax free medical.
America is an extremely rich country, one would think we could work out a way to pay for retirement and health care.
Assets in private hands are not necessarily “mad money”.
The regulatory burdens of being publicly traded have caused many great businesses to access private, rather than public, capital. As a result, ordinary people cannot buy a share of those great businesses. Their only path to buy a share is through a private equity or venture capital fund.
Consequently, the rich, qualified investors in those funds benefit relative to Jane Q. Public.
It would be far better to make it easier to be public, and harder to stay private, so that ordinary people can own shares in those great now-private businesses.
The breakdown of extended families living together and directly producing their own sustenance made it necessary for modern economies to provide sure sources of money to sustain no longer needed workers. Absent SSI and 401k plans the vast majority of Americans would end up destitute and wholly dependent on public relief. If you accept that fact then it becomes clear safe is a better goal than more. As a general rule, I try to stay away from people who are appealing to my greed.
One reason the financial industry has such a high percentage of DB plans is they know most employees won't stay at their firms long enough to benefit.
The "new" right apparently cares more about limiting our retirement accounts than limiting the presidents crypto account. As Don repeatedly sells out the national interest to personally pocket billions, the silence of the "new" right establishment remains deafening. History tells a consistent tale of the economic performance in nations that countenance corruption and pay to play. Maybe AC could muster an opinion? Or, are they worried Don might come for them like he has come for so many others? Sadly, the silence of elites in such periods is another lesson from history. We're repeating it.
Good luck America.
I went to work at an asset management firm in 1986 just as conversions from DB to DC was happening. The sales pitch to the DB plan sponsor was about eliminating risk and administrative burden from them. On the other hand we had to give participants instruction on how to allocate their accounts into which mutual funds. It struck me how absurd it was to give the same presentation to the CEO of a large grocery chain and the guy whose job it was to wet the lettuce.