The Clinton Retirement Proposal: (The media is) Missing the Waste

[Imperialism Inc.]

This is an article by Dean Baker co-director of the Center for Economic and Policy Research and author of The Conservative Nanny State about Clinton's 401K plan. His original headline was a little confusing. It didn't have the part I put in parentheses in the subject line, so it sounded like he was saying her plan missed the waste. The article makes clear he meant the media missed the savings from eliminating waste the plan will provide. I also recommend reading his book which is online at the link above. It is food for thought if nothing else.

The Clinton Retirement Proposal: Missing the Waste

The coverage of Clinton’s retirement proposal has largely missed one of the big advantages of the system that she is proposing. Clinton would make a low-cost 401(k) available to every worker in the country, modeled on the federal employees’ Thrift Savings Plan. According to estimates from President Bush’s Social Security Commission, as well as other sources, the fees on such a system would average just 0.3 percent of the money in the accounts. This compares with an average annual fee of 1.0 percent charged by private sector financial firms. The Government Accountability Office found that some
higher cost firms charged more than 1.5 percent of the money in the accounts in annual fees.

Senator Clinton’s system could also allow workers to turn their accumulation into an annuity (an annual payment that continues for life) at retirement at almost no cost, as opposed to private insurers, who typically charge fees in the range of 10-20 percent. For a worker who places $1,000 a year into an account for 30 years and has it matched by an equal sum from the government, these savings on administrative costs and annuity fees amount to more than $12,000 compared with investing with an average private sector financial firm. The savings compared with higher cost firms could be exceed $30,000.

This potential savings on administrative fees is one of the main benefits of Senator Clinton’s proposal. It should have been received more attention in the coverage.