14.6.12

PRIVATE RETIREMENT ACCOUNTS WIN BY DEFAULT?

That appears to be the argument of an advocate for ending public pensions for new state employees.
Second, when you utilize a 401K matching program, there is no such thing as “under-funding”.  The retirement money is actually paid out immediately, with each paycheck.  This allows the government to pay its bills now, rather than pass them along to future generations.  Third, a 401K match has many benefits to the employee that pensions do not offer.

For example, in a 401K, the money is 100% yours.  If you decide to leave your job after 10 years, you don’t forfeit any of the government’s contribution.  You can take it with you to the private sector or to another public agency.  Under traditional public retirement programs, employees are trapped.  If they are unhappy after 10 years with an agency, they are forced to grind it out for another 10, 15, or 20 years in order to be able to collect their pension. Conversely, in a 401K program you can resign at any time without leaving any cash on the table.

Another benefit is that the retirement money does not stop paying out when you and your spouse pass away.  Whatever is left is part of your estate and can be willed to loved ones.  Furthermore, 401K funds can be self-lent in cases of need, and are paid back with interest.
In light of the propensity of corporate pension plan managers, and state legislators, and Congress, to use plan assets -- yes, including Social Security -- as a piggy bank, the alternative looks pretty good. The danger, though, is that private acount holders also can use the assets as a piggy bank, which is what self-lending refers to.

No comments: