Bull-Market 401(k) Injustice Doesn't Need Fixing
Just as there are rich-people problems -- it's so hard to find good help for the summer home on Nantucket -- there also are bull-market problems. And William Galvin, the Massachusetts secretary of the commonwealth and chief securities regulator, seems to be upset about one he has discovered by reading some news articles.
Some companies that offer 401(k) retirement plans have shifted to year-end, lump-sum matching contributions instead of more-frequent payments to their employees. "While companies save money by making a lump-sum payment into 401(k) accounts at the end of the year, employees miss out on gains that accrue to their account during the year," Galvin said yesterday.
His statement assumes the employees' investments will go up in value during the year. Of course, there's no way to know if they will. They might go down. In that case, employees could end up avoiding losses, because the matching funds don't get invested until year-end -- and by that time, maybe the market is on the verge of recovering. But if that were to happen, you wouldn't hear employees complaining about how they might have benefited from the delays.
As I said at the start, this is a classic bull-market problem: People assume the stock market always will rise, and woe unto anyone who interferes with their ability to rack up the gains to which they're entitled as an inalienable right.
AOL Inc. recently tried shifting its payments to the end of the year but changed its mind after a backlash from employees. That seems like the best approach: Let companies and their employees work out stuff like this among themselves. People who don't like how they're getting paid can complain. Those who believe they can earn more money elsewhere can change jobs or start their own businesses. There isn't a requirement that companies even offer 401(k) plans, much less matching funds.
Galvin, ever eager for publicity, is getting involved anyway. Yesterday he called on the 25 largest administrators of 401(k) plans, including Boston-based Fidelity Investments, to tell his office how many of their corporate clients have shifted to year-end, lump-sum matching payments. He also asked for "the disclosure information provided to plan participants as to the potential risks connected to lump-sum distributions."
Maybe he will get some interesting data as a result of this exercise. But really, is it any of the government's business whether an employer decides it's better off paying matching sums once a year, or once every two weeks or monthly? There isn't much Galvin can do about the information once he gathers it.
The way the law stands now, it's up to companies to determine when to contribute. That isn't going to change, nor should it. Life is full of inequities. Not every bull-market problem calls for a government response.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)
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