COUNTERCOLUMN: All Your Bias Are Belong to Us

Let me let you people in on a dirty little secret:

Democrats hate 401(k)s.

With a passion.
With a vengeance.

They can't say so out loud, because they would be so far out of touch with the mainstream. They'd lose even more elections. As if that were possible. (Actually, it is.)

Now, not all Democrats are 401(k) hostile. But a sizeable, pro-union wing is, and will fight tooth and nail against anything that smacks of improving the 401(k).

Why?

Because in the Democrat land of make believe, in which U.S. companies can labor under ridiculous pension burdens and actuarial assumptions from the 1950s and still remain competitive in a global economy, 401(k) plans simultaneously reduce US tax revenues and tend to supplant traditional defined benefit pension plans.

Well, they do tend to do both of those things. Because companies know they cannot compete against China while simultaneously undertaking to support generations of retired workers who still draw a pension though they contribute nothing of value to the company (and therefore endanger thousands of other jobs in the process.)

The 401(k) plan, of course, is easier to administer, and much, much less expensive from the company's perspective, since they contribute only the match to tenured employees. Employees are more responsible for securing their own retirement. The 401(k) plan, then, goes the logic, will tend to undermine traditional pension plans, and screw over core Democratic union constituencies.

The argument, in its purest form, extends to IRAs as well. Remember how the $2,000 annual IRA contribution limit didn't increase for over 15 years? That was because the Clinton Administration - and before that, the Democratic congress under Reagan - adamantly opposed incentives allowing people to save for their own retirements. It was only when Republicans gained control of Congress and the Presidency that some sanity was restored to savings incentives in the tax code.

Democrats will pay lip service to investing and responsible retirement savings. But don't watch what they say - watch what they actually do:

Clinton outright said he would veto any proposal to increase IRA contribution limits, as well as 401(k)s because "it would undermine traditional pensions."

Employees are not well suited to the task, the argument goes, and will do stupid things with their money. Which is true. And it's even more true for the party who targets as its core constituency people like the stupidest 2 percent of Palm Beach County in 2000, but I digress.

Enter the Roth.

Do you like your Roth IRA? Do you like the idea of tax-free growth? Would you like to be able to have the same choice about tax deferral in your 401(k) that you do in an IRA? After all, you can choose to contribute to a Traditional, or a Roth IRA. Do you like choice? Does knowing that once you pay today's taxes on a Roth contribution you and your spouse will not have to pay taxes on it again, ever -- does that give you an incentive to save and behave responsibly?

At least one congressman doesn't think you should have that freedom.

Roth 401(k)s are scheduled to become street legal in 2006. Which means that if your plan allows, you can choose to contribute money on an after-tax basis and get the remaining years of growth tax-free. This gives you more incentive to save, because you don't have to worry about retiring with more income than you have now, since it won't put you in a higher tax bracket. Roth IRA retirement income is tax free!

But Representative Ben Cardin would like to strangle the Roth 401(k) in its crib. He has introduced a bill to that effect: H.R. 1961.

A Republican-sponsored similar bill (on pension reform generally) does not eliminate the Roth 401(k). Only the Democratic version targets the Roth 401(k) for extinction.

Democrats hate 401(k)s.

Splash, out

Jason