Good Luck Saving for Your Retirement

(Originally published here.)

For much of the past three decades as pension plans disappeared from the workplace no one seemed too upset: Retirement plans such as 401(k)s, fattened by employee pretax savings and matching employer contributions, would make up the difference.

Unfortunately, as Bloomberg Newsreports, many U.S. companies have been quietly finding ways to cut these benefits. That’s bad news for workers and serves as a counterpoint to encouraging reports of accelerating weekly wage growth.

Salaries are the most visible way workers get paid, but far from the only one. According to the Bureau of Labor Statistics, about 30 percent of total worker compensation now takes the form of paid vacation, health insurance and retirement benefits, among other things. These benefits exist mainly by historical accident. During World War II, the U.S. government established controls to limit wage increases. Employers got around these strictures by offering other forms of compensation, which often ended up getting favored treatment in the tax code. Now many employers are taking advantage of the opaque nature of these benefits to cut employment costs in a way that — they hope — will avoid angering workers too much.

One thing I find darkly amusing about this recent trend is that it helps the Federal Reserve accomplish one of its objectives, which is to make saving moneyrelatively less attractive than spending it now. As companies become less generous in matching employees’ 401(k) contributions, they effectively impose a higher cost on setting money aside for retirement compared with past years. In the absence of matching contributions, some workers might elect to save less of their pretax income and opt to pay taxes in exchange for having immediate use of their money. It isn’t obvious how making it even harder to save is good for the country, especially since so few Americans have enough savings to ensure acomfortable retirement.

There are things the government could do to help workers who had been partly counting on employer 401(k) matches to help cover their future retirement costs. One is to make Social Security more generous for everyone, an idea that may sound far-fetched at first but might end up being helpful both now and in the future. For those workers who want more control over how their savings are invested, the government could offer to top up existing personal-retirement accounts, effectively substituting for employer-matching programs. This new government benefit could let companies replace an opaque form of private-sector compensation with higher salaries. If that works out, maybe the U.S.’s archaic employer-sponsored health-care regime will go away next?

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter at @M_C_Klein.)

To contact the writer of this article: Matthew C. Klein at

To contact the editor responsible for this article: James Greiff at


About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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