WaPo Boosts 401(k)s for No Good Reason

A main beef I have with personal finance reporting—beyond its constant purveying of banalities (“diversify!”;”buy and hold!”)—is that it generally focuses on providing readers with a range of rotten options within a lousy system, rather than on questioning the whole ball of wax.

That’s why Ryan Chittum, our own “Oracle of Tulsa,” praised the Detroit News yesterday for thinking outside the leaky box that is our 401(k) system.

Among the sobering true facts: half of the workers with less than 10 years to go before hitting the traditional retirement age at 65 had nest eggs of less than $40,000. That’s $204 a month for 20 years. This isn’t working, people.

He points to a good sidebar that informs readers that the 401(k) was created as a minor footnote to the tax code, not as the principle supplement for retirement security.

Other voices are making good cases that this is not the way to go.

Now, we are Twitted that Time is coming out with a cover piece questioning the system.

That’s why a column by The Washington Post’s Michelle Singletary deserves a double dose of scrutiny.

“The Forecast Is Sunny if You Weather the 401(k) Storm”

It’s based on a study by the Investment Company Institute and the Employee Benefit Research Institute. More on them in a minute. The key finding:

But retirement plan data studied by the groups found that over a five-year period— from 2003 to 2008—401(k) participants saw their account balances increase at an average annual rate of 7.2 percent. Now, mind you, these are not the return-on-investment figures you’re used to seeing—in this case they include the workers’ ongoing contributions and any employer matches as well as the investment gains and losses.

I’m glad she added that second sentence. Thank goodness for small favors.

What’s more, we’re told this proves the system works:

“Basically the engine of saving and investing that the 401(k) presents still works,” said Sarah Holden, ICI senior director of retirement and investor research.

This assertion is not contradicted or even questioned. I don’t get it. There are no other points of view? We already know there are; let’s hear them. I also don’t understand why readers aren’t told of the orientation of the two groups that produced the study, particularly the ICI, the mutual fund industry’s trade group. Does this make the figures inaccurate? No, but what’s the harm in telling readers about the authors of the study?

The assertion is backed up with this set of figures:

For participants in retirement plans who invest consistently, the average account balance rose to $86,513 at year-end 2008 from $61,106 at the end of 2003.

I suppose it’s good to know account balances rose, but what if investors had put the money in a mattress instead? Or better still, what if those proceeds had gone into some other system, say, Social Security? If investors would have been better off without the “help” of the mutual-fund industry, what’s the relevance of that figure?

Look, it’s fine to go for a counterintuitive angle. But failing to look outside the narrow frames of a trade-group study just does not seem to meet basic standards.

Remember the context. Among other things, the market is down not just over five years, but over 10 years, by 20 percent. That is the very definition of “long term.” For me, that fundamental fact makes a mockery of a lot of personal financial advice.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.