Thursday, January 06, 2005

NYT op/ed: Save Social Security via new universal 401(k)s

Gene Sperling's op/ed piece in yesterday's NYT - No Pain, No Savings - offers an interesting alternative to the Social Security deadlock between creating private investment accounts and sticking to the status quo.

He offers the idea that we roll these proposed Social Security private accounts into our own 401(k)s and open new 401(k)s for those too poor to save. In the worst case the lower-income workers would be no worse off than they'd be with the current privatization proposals.

But in the best case scenario, the power of compounding interest comes into play as our 401(k)s grow by our own contributions, employer contributions (should you be so lucky), and whatever Social Security contributions are envisioned in the private account proposals. And the concept itself leverages the best features of 401(k)s - that they encourage personal savings. Lower income workers may not be able to invest much into these proposed 401(k)s, but at least they'd have the option and some seed money from Social Security.

I'm not nearly well versed enough on tax law, 401(k)s, or the current privatization proposals to tell if this is a ridiculous idea or not. But at least it passes the smell test, certainly moreso than Bush's "it's your money" credo for his backing of private savings accounts in Social Security. Whatever form those private savings accounts might take, they'd simply be too small and insignificant to ever amount to much of anything. Throw in the increased risk of personally-managed investing and you've got a bad situation.

401(k)s have been around for a while now and I don't hear much rumbling against them. This seems like a fantastic idea to me.

Comments? Could it work?


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