4 ms·

I agree. It was interesting to see this all come up with union negotiations. The union's push against switching to a 401k was that it puts them at risk when the

I agree. It was interesting to see this all come up with union negotiations. The union's push against switching to a 401k was that it puts them at risk when the market performs poorly. Unfortunately from a company standpoint, when the market goes down, their required pension contributions go up, a real bind in cash when you need it most. There's more politics involved - like the automotive unions giving up numerous raises for better pensions, companies refusing to fully fund pensions in good years leading to them being woefully underfunded in bad, etc. Personally I'm glad to not have a pension hanging over my head. I could leave tomorrow and have the full value of my 401k. I know people who are miserable and hate their jobs, but if they leave before hitting 30 years, they get barely anything. At my company, leaving at 29 years would yield less than half the monthly payout compared to 30 years. The pension and social security is the retirement plan for those who live paycheck to paycheck. I do really wish everyone had the same access to tax advantaged accounts. The administration costs of 401k's make it more challenging for small companies to offer. All else equal, having a 401k available versus unavailable is with a few thousand dollars per year to me because of the tax deferral.

lotsofpulp 7y ago
>There's more politics involved - like the automotive unions giving up numerous raises for better pensions, companies refusing to fully fund pensions in good years leading to them being woefully underfunded in bad, etc. This is the inherent agency risk in defined benefits. The people at the beginning can make off like bandits while screwing those down the line, whether intentionally or not (due to global economic environmental changes). >I do really wish everyone had the same access to tax advantaged accounts. The administration costs of 401k's make it more challenging for small companies to offer. All else equal, having a 401k available versus unavailable is with a few thousand dollars per year to me because of the tax deferral. 401k are extremely easy to administer, or at least much, much easier than defined benefit pensions. However, it would be ideal if the US government stopped giving large companies subsidies (via the 401k tax deduction), and simply gave an IRA deduction to everyone, regardless of employer or whatnot. There is no need for employers to be involved.
- froindt 7y ago
  >401k are extremely easy to administer, or at least much, much easier than defined benefit pensions. Definitely so! They require filing the Form 5500 annually with severe penalties for not doing so, and if safe harbor criteria aren't met, I believe an actuary may be required. I helped setup a small business 401k a few years ago and found Human Interest to be about the cheapest option overall at {employer: $120/month + $4/user/month} + {employee: 0.5% AUM management fee + fund expense ratios (good funds available, coming in around 0.07%.)}. The direct employer cost is still $1,500/year for 2 employees before any match. Simple IRA's are an option, but have much lower contribution limits. >However it would be ideal if the US government stopped giving large companies subsidies (via the 401k tax deduction) Do you mean the administrative expenses and employer contributions being tax deductible, or a more specific nuance to the tax code? The intent of the 401k safe harbor rules is to ensure they don't only benefit the highest compensated employees. For someone earning 30k/year, saving for the future is a legitimately tough proposition. I haven't fully fleshed out how I'd best handle ensuring all groups can reasonably be able to retire.
  - lotsofpulp 7y ago
    I mean the only compensation between an employer and employee should be cash (withheld at whatever taxes according to income tax rates). If the government wants to then incentivize retirement or healthcare savings via tax deductions, it should offer that to everyone, regardless of employer or where the income came from. However, I'm also against using tax deductions as it allows for price obfuscation. I would be okay with government providing incentives such as matching contributions. That would allow for clear accounting of government expenditures.
jogjayr 7y ago
> The administration costs of 401k's make it more challenging for small companies to offer. It's not at all clear to me that 401Ks need to exist when we already have IRAs. Why not just increase the contribution limits on traditional IRAs to 401K levels? It gives everyone access to the same savings options, employees aren't tied to a single 401K provider that can gouge them on fees, employers don't have to administer anything.
- deleted 7y ago
  [deleted]
- sokoloff 7y ago
  I don't believe that employers can pay a "match" into IRAs. (Now, whether allowing them to do so into 401(k) is a good idea in the first place is a fair question. It's great if you're a solo employer, and serves to encourage some level of savings as an individual, but I wonder if we couldn't get some of the benefit of the second in another manner.)
  - jogjayr 7y ago
    There's no practical reason employers can't pay a match into IRAs. It's just how the laws are written at the moment.

lotsofpulp 7y ago

>There's more politics involved - like the automotive unions giving up numerous raises for better pensions, companies refusing to fully fund pensions in good years leading to them being woefully underfunded in bad, etc. This is the inherent agency risk in defined benefits. The people at the beginning can make off like bandits while screwing those down the line, whether intentionally or not (due to global economic environmental changes). >I do really wish everyone had the same access to tax advantaged accounts. The administration costs of 401k's make it more challenging for small companies to offer. All else equal, having a 401k available versus unavailable is with a few thousand dollars per year to me because of the tax deferral. 401k are extremely easy to administer, or at least much, much easier than defined benefit pensions. However, it would be ideal if the US government stopped giving large companies subsidies (via the 401k tax deduction), and simply gave an IRA deduction to everyone, regardless of employer or whatnot. There is no need for employers to be involved.

froindt 7y ago
>401k are extremely easy to administer, or at least much, much easier than defined benefit pensions. Definitely so! They require filing the Form 5500 annually with severe penalties for not doing so, and if safe harbor criteria aren't met, I believe an actuary may be required. I helped setup a small business 401k a few years ago and found Human Interest to be about the cheapest option overall at {employer: $120/month + $4/user/month} + {employee: 0.5% AUM management fee + fund expense ratios (good funds available, coming in around 0.07%.)}. The direct employer cost is still $1,500/year for 2 employees before any match. Simple IRA's are an option, but have much lower contribution limits. >However it would be ideal if the US government stopped giving large companies subsidies (via the 401k tax deduction) Do you mean the administrative expenses and employer contributions being tax deductible, or a more specific nuance to the tax code? The intent of the 401k safe harbor rules is to ensure they don't only benefit the highest compensated employees. For someone earning 30k/year, saving for the future is a legitimately tough proposition. I haven't fully fleshed out how I'd best handle ensuring all groups can reasonably be able to retire.
- lotsofpulp 7y ago
  I mean the only compensation between an employer and employee should be cash (withheld at whatever taxes according to income tax rates). If the government wants to then incentivize retirement or healthcare savings via tax deductions, it should offer that to everyone, regardless of employer or where the income came from. However, I'm also against using tax deductions as it allows for price obfuscation. I would be okay with government providing incentives such as matching contributions. That would allow for clear accounting of government expenditures.

jogjayr 7y ago

> The administration costs of 401k's make it more challenging for small companies to offer. It's not at all clear to me that 401Ks need to exist when we already have IRAs. Why not just increase the contribution limits on traditional IRAs to 401K levels? It gives everyone access to the same savings options, employees aren't tied to a single 401K provider that can gouge them on fees, employers don't have to administer anything.

deleted 7y ago
[deleted]
sokoloff 7y ago
I don't believe that employers can pay a "match" into IRAs. (Now, whether allowing them to do so into 401(k) is a good idea in the first place is a fair question. It's great if you're a solo employer, and serves to encourage some level of savings as an individual, but I wonder if we couldn't get some of the benefit of the second in another manner.)
- jogjayr 7y ago
  There's no practical reason employers can't pay a match into IRAs. It's just how the laws are written at the moment.