Column: Two political adversaries agree--401(k) plans haven't helped you save enough for retirement
It might have been instructive to listen in as Munnell and Biggs developed their paper. As a close follower of the work of both, I almost imagine I can identify some of each author’s particular contributions. That would only be a distraction from the very instructive conclusions they arrived at together, so let it go.
Defined contribution plans such as 401 plans require employees to invest a portion of their wage income, sometimes partially matched by the employer, most often in stocks, bonds or mutual funds; the contributions are tax-deferred: The worker doesn’t pay tax on the contributions when they’re made or on annual gains in the account, but withdrawals in retirement are taxed as ordinary income.
One other observation: Employee participation in 401-type plans is much more unequal than in traditional plans. The union-orientedthat 68% of households in the top 20% of the income ladder had 401 plans, but only 4% of those in the bottom 20% of income. By contrast, 27% of the top fifth and 6% of the bottom fifth had defined benefit pensions. Munnell and Biggs gloss over this imbalance, as we’ll see.
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