Congress Has a Dangerous Idea for Your 401(k)

Saving for retirement is already difficult. Why make it more so?

Carefully, please. Photographer: Drew Angerer/Getty Images

 

Saving for retirement can be a perilous endeavor in the U.S., thanks in part to the Trump administration’s moves to weaken safeguards against unscrupulous sellers of financial products. Now Congress is poised to make things worse -- by undermining protections governing the country’s most popular investment vehicle, the 401(k) plan.

 

Named after a once-obscure 1978 provision in the tax code, the 401(k) allows people to set up retirement-savings accounts through their employers, with income taxes deferred until the money is withdrawn. Employers and their chosen administrators assume fiduciary responsibility for the plans, meaning that they’re supposed to offer a menu of sensible investment options. Ideally, these include low-fee mutual funds, sometimes targeting a specific retirement date.

 

Amid growing concern about the number of people financially unprepared for retirement, Congress is considering tweaking how the 401(k) works. The overall intent of the relevant bipartisan legislation, known as the SECURE Act in the House and RESA in the Senate, seems admirable: Encourage people to save more. Among other provisions, the bills could help small employers band together to create efficient 401(k)s, and increase age limits for contributions to tax-deferred accounts.

 

Yet the bills also seek to encourage a currently rare option in 401(k) plans: annuities. In principle, this could be wonderful, if