David John, a pension expert at the conservative Heritage Foundation, dismisses the likelihood of enacting far-reaching changes like those supported by Senator Harkin and Ms. Ghilarducci. Partly because of industry opposition, he said, “starting something wholly new would be virtually impossible.”
Mr. John argued that it would be wise to keep the 401(k) system, imperfect as it is, and improve it. With some reservations, he praised the automatic enrollment features of the Pension Protection Act of 2006, which allows companies that offer plans to automatically enroll new employees,, typically at 3 percent of pay, although workers can opt out.
He also praised the law’s automatic escalation provisions, which enable companies to ratchet up employees’ contribution rate from 3 percent in an employee’s first few years unless workers opted out. He criticized Congress for essentially setting 3 percent of pay as a default investment level. “The 3 percent level is a huge mistake,” he said.
He wants Congress to raise the automatic enrollment’s default participation rate to 6 percent. That, he said, would hardly reduce enrollment and would create a larger nest egg for retirement.
The battle over whether the 401(k) system needs some fine-tuning or radical surgery is still gathering force. “A czar would be able to fix this easily,” Mr. Bogle said. “Whether politicians can fix this is something else again.”
The 401(k) can be saved simply by treating it more like a pension fund rather than a trading platform. Most participants are ill-prepared to effectively manage their own retirement plan.
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