February 21, 2017
Dean Baker
Truthout, February 20, 2017
We all know how hard it is to be rich. After all, it takes a lot of money to keep up multiple homes, pay for first class air travel, expensive cars and the like. For this reason, most people would naturally support a Republican plan to make workers pay higher fees on their retirement accounts so that the Wall Street crew is better able to maintain their standard of living.
Unfortunately, this is not a joke. One of the major problems facing workers today is the inability to save for retirement. Traditional defined benefit pensions are rapidly disappearing. Roughly half the workforce now has access to a 401(k) defined contribution plan at their workplace, but we know that these generally are not providing much support in retirement.
Most workers manage to accumulate little money in these accounts over the span of their working career. Part of this is due to the fact that they often change jobs. They may go several years without being able to contribute to a 401(k) plan at their workplace. And they often cash out the money that they saved in a plan when they leave a job.
In addition, many of these plans charge high fees. This is often overlooked by workers since the financial companies operating the plans usually don’t like to advertise their fees. The average fee is close to 1.0 percent of the money saved, with many charging fees of 1.5 percent of higher.
If this sounds like a small matter, imagine that you were able to save $100,000 in a 401(k). That would put you way ahead of most workers, since the median accumulation among the 60 percent of the workforce who have 401(k)s was just $26,000 in 2015, but $100,000 is certainly a plausible amount for a worker earning $60,000 a year.
A fee of 1 percent means that this worker is giving $1,000 a year to the financial industry. If they are paying 1.5 percent, then they are giving the financial industry $1,500 a year. But this is not a single year story. Suppose you average $100,000 in your account over a 20-year period. You might have handed over $30,000 to a bank, brokerage house or insurance company for basically nothing. Feel good now?
Several states, most notably Illinois and California, are in the process of opening up their public retirement plans to workers in the private sector to allow people to save without giving so much money to the financial industry. Under this plan, workers in private firms would have the option to contribute to a state managed system.
This would have the advantage of keeping the same plan even as someone changed jobs and the fees would be far lower. Instead of fees of 1 to 1.5 percent, workers would likely be seeing fees in the range of 0.2 to 0.3 percent. Did I mention this was voluntary?
Okay, so we’re talking about giving workers the option to save for their own retirement in individual accounts. If the Republican Party stood for anything other than giving money to rich people, this would be it.
But the Republicans are up in arms against making it easier for workers to save. Paul Ryan and his gang are planning to deny states the right to offer such plans. The trick they are using is in a ruling by the Labor Department which gives the individual employers exemptions from the Employee Retirement Income Security Act (ERISA) requirements when their workers contribute to the state sponsored plan. The ERISA requirements are designed to ensure that an employer operating a pension plan for their workers is doing proper bookkeeping and is handling the money appropriately.
In this case, it doesn’t make sense for the ERISA rules to apply to individual employers since all they are doing is sending a check for their workers’ contributions to the state-operated system. The individual employer plays zero role in what happens to the money.
This is the reason the Labor Department ruled last year that ERISA did not apply to individual employers who had workers taking part in the state-sponsored system. It is this ruling that Paul Ryan’s gang wants to reverse. They argue, incredibly, that workers need safeguards with their savings and that the government must have oversight over employers sending checks to the state system.
This one is too ridiculous even for Washington politics. Everyone knows that there is nothing the Republicans in Congress hate more than government regulations that protect workers. This is why they were so anxious to repeal the fiduciary rule requiring financial advisers to act in the interest of their clients. This is why they want to gut the Consumer Financial Protection Bureau.
The story here is about as simple as it gets. Republicans’ buddies in the financial industry will lose a lot of money if workers can put their money in these state-sponsored retirement systems instead of having to rely on their rip-off outfits. The Republicans are rigging the system to transfer tens of billions of dollars a year from ordinary workers to their rich friends. The only principle here is giving more money to the rich.
