Menckens Ghost

More About: Economy - Economics USA

The truth about 401(k) plans, not that the truth matters

By Mencken’s Ghost
Nov. 30, 2012 

I predicted a few years ago that our broke national government was eventually going to confiscate tax-deferred retirement plans, such as 401(k) plans and Individual Retirement Accounts (IRAs).

Well, the groundwork is being laid to do just that.  Useful leftists in academia are making the philosophical and revenue cases for the confiscation, or I should say, have put intellectual rot on hooks for the gullible and amoral media and masses to swallow.  In fact, Time Magazine already has taken the bait. 

You can expect a concerted effort from the usual suspects to win over the media and masses with relentless brainwashing, conditioning, and agitating.  And you can expect Republicans to stay in their default position of defense instead of going on offense and going for the jugular as Democrats do.

Let’s play along with the left’s charade that this issue is about something other than stealing money from those who have it and giving it to those who have squandered it--that it is about fairness, not stealing.

Before turning to their smokescreen arguments, please let me explain why I’m qualified to discuss this subject:  Of my many responsibilities over my corporate career, one was overseeing employee benefits, including 401(k) plans, for tens of thousands of employees. 

I eventually quit the lucrative career because of being conflicted over what I was doing.  I had to go along with the lie that the government is doing a favor for employees by letting them defer taxes on a small part of their savings.  Actually, the government is doing harm to employees (and to the nation) by taxing their savings at all.  Citizens shouldn’t have to pay a penalty to save for retirement and not be a burden on society, especially when savings are necessary for investments in plant, equipment, and new jobs.  Moreover, because of the administrative and regulatory complexities of 401(k) plans, investment returns are lower than they would otherwise be, due to fees for administration and legal and tax advice.  A big chunk of those fees go to Republicans who rant about big government while having their snouts buried in the rancid regulatory pork from 401(k) plans.

One of the left’s arguments is that the wealthiest 20% of the population has 80% of the money that is in IRAs and 401(k) plans.  Assuming this is factual, there are two fallacies with the argument.

First, 401(k) plans have to pass a so-called discrimination test.  This means that there has to be a proportional participation of higher- and lower-paid employees in the plans.  If a company doesn’t pass the test, high-paid employees are restricted in their contributions.

This test forced me to get involved in employees’ personal lives.  I had to implore and cajole lower-paid employees to participate in the plans and not pass up the free money of the employer’s matching contribution.  Sometimes this entailed asking higher-paid employees to reduce the amount they wanted to put in their accounts.  Either way, I was a pain in the ass.

Almost all of the employees who didn’t participate in the plans, even the lower-paid ones who didn’t participate, had some reason other than needing the money for living expenses. They weren’t so low-paid and so struggling financially that they couldn’t afford to contribute to the plans and save for retirement.  They simply had no self-restraint and no long-term outlook.  They preferred to spend the money on non-essentials, such as sporting events and concerts, lunches at expensive restaurants, cigarettes and booze, and cars that were fancier than necessary.

Personal anecdote:  In 1980, as a corporate vice president, I bought a new Toyota Corolla for $5,777 (I still have the receipt).  It had a stick shift, roll-down windows, and such a puny engine that the air-conditioner wouldn’t cool the passenger cabin in the summer heat of Phoenix.  I drove the car for 20 years.  For a time, a fellow employee would park his big, fancy and expensive BMW next to me.  A lower-level salesman, he was a high-roller with a Rolex watch, Armani suits, a high-maintenance wife, and a lot of debt from trips to Vegas and exotic locales.  One day he came to me and requested a hardship withdrawal from his 401(k) plan, ostensibly for a down-payment on a new house, which was allowed under IRS rules at the time.  He used the proceeds to buy a new BMW and used other money for the down-payment. 

No doubt, he has no retirement savings today and isn’t worried about the government confiscating 401(k) plans.  He may even be hoping for it, because he might get some of the stolen loot.

Which brings me to the second fallacy of the left--namely, that people have retirement savings because they are rich.  Actually, the opposite is true:  people are rich because they saved money all their lives.  Virtually all of the “rich” people I have known over the years got that way by living below their means, having a long-term outlook, exercising self-restraint, investing in their future, and not caring about status symbols.

There is nothing fair about taking their savings.  Of course, as I said at the beginning, fairness has nothing to do with the left wanting their money.



Mencken’s Ghost is the nom de plume of an Arizona writer who can be reached at

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