So when did americans decide to atomize themselves into individual retirement plans as opposed to a described benefit pension plan PIA?
Granted it was an enormous windfall for the financial services industry but it hardly benefited most working Americans. True the process was started in the 80's and accelerated in the nineties but how did we, as a society, decide on this market mechanism as the only alternative?
Here's my consistent take: Most policymakers divide their constituents into investors or non-investors. Wage earners are, by and large, non-investors. Certainly the poor and minorities are non-investors. There is a nearly perfect correlation between the investor class and the donor class (people with money are usually the ones that donate), so it behooves elected representatives to cater to that class. This neatly corresponds with the biases of economists, who view most economic activity (wrongly) as based upon "investment". That explains the fixation on the stock markets and "housing starts" as gauges of economic activity.
As a result, policymakers (of both parties) tend to skew economic policy priorities toward the investor class - on taxes, on healthcare, on infrastructure, etc., rather than on "the citizenry" in general - but with different justifications. 401(k)s were born of this perceptual framework. A brief history of the 401(k), which changed how Americans retire
(CNBC). Social Security is good and all (or bad, if you are conservative), but don't represent "investment" in the economy (which is empirically wrong on so many levels). Democrats saw the 401(k) as a supplement to
SS, whereas Republicans saw it as a replacement for
Social Security. Corporations saw it as an off-ramp for expensive pension plans, and Hedge Fund Managers saw it as a new source of revenue.
The problem is, 401(k)s, like Social Security, were not intended to be a substitute for retirement plans, but a hedge against penury in old age. 401(k) Basics: When It Was Invented and How It Works
Despite their popularity today, 401(k) plans were created almost by accident. It started when Congress passed the Revenue Act of 1978, which included a provision that was added to the Internal Revenue Code — Section 401(k) — that allowed employees to avoid being taxed on deferred compensation.
In 1980, benefits consultant Ted Benna referred to Section 401(k) while researching ways to design more tax-friendly retirement programs for a client. He came up with the idea to allow employees to save pre-tax money into a retirement plan while receiving an employer match. His client rejected the idea, so Benna’s own company, The Johnson Companies, became the first company to provide a 401(k) plan to its workers.
In 1981, the IRS issued new rules that allowed employees to fund their 401(k) through payroll deductions, which kickstarted the 401(k)’s popularity. Within two years, nearly half of all big companies were offering 401(k)s or were considering it, according to the Employee Benefits Research Institute.
According to the Wall Street Journal, "just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979". That change has been devastating for workers because, as the Economic Policy Institute notes, "401(k)s [are] 'a poor substitute' for the defined benefit pension plans many workers primarily relied on, which provide a fixed payout for employees at retirement".
Many employees (mostly white-collar) are now severely dependent on Stock Market prices in retirement because 401(k) "plans" hold more than $4.8 trillion in employee assets on behalf of nearly 54 million workers. The 2nd Bush administration pushed 401(k)s as a substitute for Social Security, even though most workers don't have access to them
. According to data from the U.S. Census Bureau, only 32% of Americans are saving for retirement in a 401(k).
What we need to do is flip the script: instead of skewing policy toward the "investor class" - which accounts for only 20% of the population (and even less of the functional economy) - we need to skew it toward "the citizenry" as a whole. Thus, healthcare security, retirement security, education availability and living wages should be the touchstone for policy. And, those are popular positions for voters (especially on the left, but even amongst Republicans). Little Partisan Agreement on the Pressing Problems Facing the U.S.