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>So we are still equally reliant on employers as the facilitator of access to a retirement benefit. Functionally it’s truly not different than pensions, only th

by lsc 8y ago

>So we are still equally reliant on employers as the facilitator of access to a retirement benefit. Functionally it’s truly not different than pensions, only the underlying financial instrument is different. No, 401K pensions are 'defined contribution' systems; you put in X, your employer puts in X/2 (or whatever it is they decide. X/2 is common in my area, but as you point out, some lower-end employers contribute nothing at all, while others have weird vesting schedules on it.) - when you retire, you get out... however much that money has grow (or lost) - no guarantees, just a tax deferral on money you invest for retirement. Usually when people talk about pensions, they are talking about /defined benefit/ pensions. These are essentially like an annuity that is only good if the issuing company doesn't go under; you work until you retire, and you get some fixed amount of income every month until you die (or the company goes under) The idea that a defined benefit pension is very much like a lifetime annuity is key to understanding why pensions seem to work fine in some times and not so fine in other times; In the '80s, when my parents were getting jobs that got them defined benefit pensions, you could run out and buy T-bills and expect to make significantly more than inflation. annuities made a lot of sense. By the time it was my turn in the late 90s/early aughts? T-bills no longer returned significantly more than inflation. Safe investments became a lot less profitable, and thus defined benefit pensions became a lot more difficult.

mlthoughts2018 8y ago
My comment was that even though 401(k) plans are defined contribution plans and are very different than pensions, most people are still dependent on their employer for access to them and there are laws severely limiting what you can contribute outside of payroll deductions via an employer, Roth vs traditional, one-time roll-overs, etc. It’s still just as tied up with employers as before, even though the instrument functions very differently (some might argue it operates far worse) than pensions. Often if you lost a job or changed jobs after some years of service, you were eligible for partially vested pension amounts, so even the idea that you can “take your 401(k) with you” when you quit / lose a job is still pretty analogous with employer tie-ups in pensions. And there can be issues about vesting for an employer match or no match at all. Additionally, the employer chooses who your asset manager will be, and may not choose a large, low-fee, good customer service option like Vanguard or something. Just another way the employer dictates how this retirement vehicle affects workers. I’m not saying 401(k) is the same as defined benefit at all. Only that the move towards defined contribution plans has not actually decoupled retirement plans from employer intervention in any meaningful way. Employer control is roughly just as it always has been, only now employees are forced to bear the risk of the underlying assets, instead of compeling the employer organization (which is far more capable of absorbing risk and riding out downsides) to bear that risk.
- lsc 8y ago
  > My comment was that even though 401(k) plans are defined contribution plans and are very different than pensions, most people are still dependent on their employer for access to them and there are laws severely limiting what you can contribute outside of payroll deductions via an employer, Roth vs traditional, one-time roll-overs, etc. I mostly disagree? Mostly. If you don't make a lot of money, you are gonna have a hard time putting away more than the $5.5K or so that a conventional IRA limits you to. (and if you don't have an employer plan, setting up a conventional IRA or Roth IRA for that $5.5K is super easy) If you make enough that you can put away much more than that, you probably either have an employer who gives you access to a 401K OR you have something like a business. If you have something like a business, talk to your tax professional. (if you make enough money that you worry about this stuff, you need a tax professional. I suggest looking a the 'enrolled agent' license) - There are tax advantaged retirement plans for the self employed that let you put away a lot more pre-tax than the $18.5K that a 401K will let you put away. Ask your tax person about the 'SEP IRA' - there are other plans, and I'm not qualified to guide you here, so ask your tax professional, but there are a lot of really good options for the 'self employed but making a lot more money than I need to live on' set. (note, dollar amounts are approximate, and probably out of date. again, if you have a business that does significant monies, talk to a licensed tax professional, not a computer technician who burnt out running a business a while back) >I’m not saying 401(k) is the same as defined benefit at all. Only that the move towards defined contribution plans has not actually decoupled retirement plans from employer intervention in any meaningful way. Employer control is roughly just as it always has been, only now employees are forced to bear the risk of the underlying assets, instead of compeling the employer organization (which is far more capable of absorbing risk and riding out downsides) to bear that risk. I think the fundamental difference here is that with a 401K, I have to trust my employer a lot less. I agree, of course, with your point about risk, that with a 401K, I am taking on a lot of market risk, risk that a company is better setup to handle than I am. However, key here is that with a 401K, my fate is no longer tied to the companys fate. If the place I work for goes tits up after I leave (which has alrealdy happened to me a few times, I hope through no fault of my own) with a 401K, it's no skin off my nose. With a company defined-benefit pension... it is a much bigger deal for me. (As an aside, I personally think a government old-age pension that isn't dependent on your income is the rawlsian thing to do here. I'm just pointing out that in the fight between the 401K and the private-company defined-benefit pensions, there are real differences and real arguments in both directions)

by lsc 8y ago

mlthoughts2018 8y ago

My comment was that even though 401(k) plans are defined contribution plans and are very different than pensions, most people are still dependent on their employer for access to them and there are laws severely limiting what you can contribute outside of payroll deductions via an employer, Roth vs traditional, one-time roll-overs, etc. It’s still just as tied up with employers as before, even though the instrument functions very differently (some might argue it operates far worse) than pensions. Often if you lost a job or changed jobs after some years of service, you were eligible for partially vested pension amounts, so even the idea that you can “take your 401(k) with you” when you quit / lose a job is still pretty analogous with employer tie-ups in pensions. And there can be issues about vesting for an employer match or no match at all. Additionally, the employer chooses who your asset manager will be, and may not choose a large, low-fee, good customer service option like Vanguard or something. Just another way the employer dictates how this retirement vehicle affects workers. I’m not saying 401(k) is the same as defined benefit at all. Only that the move towards defined contribution plans has not actually decoupled retirement plans from employer intervention in any meaningful way. Employer control is roughly just as it always has been, only now employees are forced to bear the risk of the underlying assets, instead of compeling the employer organization (which is far more capable of absorbing risk and riding out downsides) to bear that risk.

lsc 8y ago
> My comment was that even though 401(k) plans are defined contribution plans and are very different than pensions, most people are still dependent on their employer for access to them and there are laws severely limiting what you can contribute outside of payroll deductions via an employer, Roth vs traditional, one-time roll-overs, etc. I mostly disagree? Mostly. If you don't make a lot of money, you are gonna have a hard time putting away more than the $5.5K or so that a conventional IRA limits you to. (and if you don't have an employer plan, setting up a conventional IRA or Roth IRA for that $5.5K is super easy) If you make enough that you can put away much more than that, you probably either have an employer who gives you access to a 401K OR you have something like a business. If you have something like a business, talk to your tax professional. (if you make enough money that you worry about this stuff, you need a tax professional. I suggest looking a the 'enrolled agent' license) - There are tax advantaged retirement plans for the self employed that let you put away a lot more pre-tax than the $18.5K that a 401K will let you put away. Ask your tax person about the 'SEP IRA' - there are other plans, and I'm not qualified to guide you here, so ask your tax professional, but there are a lot of really good options for the 'self employed but making a lot more money than I need to live on' set. (note, dollar amounts are approximate, and probably out of date. again, if you have a business that does significant monies, talk to a licensed tax professional, not a computer technician who burnt out running a business a while back) >I’m not saying 401(k) is the same as defined benefit at all. Only that the move towards defined contribution plans has not actually decoupled retirement plans from employer intervention in any meaningful way. Employer control is roughly just as it always has been, only now employees are forced to bear the risk of the underlying assets, instead of compeling the employer organization (which is far more capable of absorbing risk and riding out downsides) to bear that risk. I think the fundamental difference here is that with a 401K, I have to trust my employer a lot less. I agree, of course, with your point about risk, that with a 401K, I am taking on a lot of market risk, risk that a company is better setup to handle than I am. However, key here is that with a 401K, my fate is no longer tied to the companys fate. If the place I work for goes tits up after I leave (which has alrealdy happened to me a few times, I hope through no fault of my own) with a 401K, it's no skin off my nose. With a company defined-benefit pension... it is a much bigger deal for me. (As an aside, I personally think a government old-age pension that isn't dependent on your income is the rawlsian thing to do here. I'm just pointing out that in the fight between the 401K and the private-company defined-benefit pensions, there are real differences and real arguments in both directions)