- The Washington Times - Monday, June 24, 2002

Those who enjoy kicking folks when they're down see stock market troubles as a political opportunity. The kicking team is trying to persuade us that control over our own retirement plans is a bad idea.
The first effort was a puny punt, "The Great 401(k) Hoax," coauthored by the resident CNBC curmudgeon Bill Wolman. The next kick was badly aimed, "Retirement Insecurity," by New York University economist Edward Wolff.
It seems only fair to let the AFL-CIO describe Mr. Wolff's study, since it surely paid for it. Its news release cites one of Mr. Wolff's co-conspirators saying the study "sheds a whole new light on the debate over Social Security. President George W. Bush and his Big Business allies have proposed partially privatizing Social Security. Meanwhile, the scandal-ridden collapse of Enron has shown that workers cannot rely on 401(k) plans for a secure retirement."
The plan here was to make Social Security look good by making personally owned pensions look bad, and to stop lower-income workers from using payroll taxes to contribute to their own voluntary retirement plan (that is, to a plan controlled by neither bosses nor union bosses).
What Mr. Wolff actually found, however, was that for households age 47-to-64 "mean (average) Social Security wealth fell by 13.4 percent" from 1983 to 1998, while "defined contribution plans grew by 838.1 percent." He tries to make those facts acceptable to sponsors by switching from average to median wealth. Mr. Wolff claims "the median [retirement wealth] reflects the level of well-being associated with the typical family."
In reality, the median just means half had more retirement wealth and half less. This median is not "typical" it is simply a dividing line that separates the half of the population with 401(k), 403(b), Keogh, SEP and IRA plans from the other half that lack such plans and are therefore trapped within Social Security.
The bottom half suffered most from the 13 percent loss in Social Security wealth because few had 401(k) plans or IRAs to offset the increase in Social Security's retirement age. Median wealth declined only because of shrinking Social Security, not because of soaring 401(k) plans. If those below the median had been able to put half of their Social Security taxes into something like a 401(k), they would have ended up receiving half as much from Social Security (thus saving Social Security more in outlays than it would lose in payroll taxes), but they would have shared in the impressive wealth gains of the top half those with 401(k) plans.
"I think the 401(k) is a real scam," Mr. Wolff told the New York Times. He contradicts his own figures by claiming that those with 401k plans would otherwise have received generous defined benefits from employers. The National Bureau of Economic Research recently published a serious study of such matters by James Poterba of the Massachusetts Institute of Technology, Steven Venti of Dartmouth and David Wise of Harvard. They found "the enormous increase in defined contribution plan assets dwarfed any potential displacement of defined benefit plan assets."
The AFL-CIO echoes Mr. Wolff's favorite ruse by claiming, "For households at the median, retirement wealth declined by 11 percent between 1983 and 1998." Ironically, that figure does indeed "shed a whole new light on the debate over Social Security." The only reason median retirement wealth fell by 11 percent was because Social Security wealth fell by 13 percent, nearly offsetting a 29 percent increase in wealth from private pensions. This is how the AFL-CIO hopes to persuade us that Social Security is a good deal and voluntary pensions are not?
The AFL-CIO echoes another Wolff ruse, arguing that "more than 40 percent of households headed by someone between the ages of 47 and 64 will not be able to replace even half of their pre-retirement income once they stop working." That might sound worrisome if you imagine everyone has finished saving for retirement by age 46. But Mr. Wolff's' figures show that average wealth at ages 59-to-64 is double what it is at 47-to-52.
Mr. Wolff frets, "The growing system of voluntary accounts in the United States has produced greater inequality." That inequality was between those who counted on Social Security and suffered a loss in wealth, and those who participated in voluntary retirement plans and enjoyed huge gains.
Press reports have dutifully reported that this study proves that voluntary 401(k) plans are a bad deal and involuntary Social Security is in fine shape. Actually, Mr. Wolff has inadvertently presented yet another powerful argument for broadening access to individually owned and controlled retirement plans by privatizing Social Security.

Alan Reynolds is a nationally syndicated columnist and a senior fellow with the Cato Institute.


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