If only someone would clip the coupons for you, saving for retirement would be easy. Photographer: Karen Bleier/AFP/Getty Images
If only someone would clip the coupons for you, saving for retirement would be easy. Photographer: Karen Bleier/AFP/Getty Images

In today's Letter to the Blogitor, a human resources manager responds to my post on forced savings:

Having formerly worked for an asset manager focused on the wealth management space and now in a position where I help oversee both our company's 401k plan and DB scheme, I am very passionate about the issues you raised. I view it both as a moral imperative and simply good business that our company helps our employees to save appropriately for their retirement years.

However, I continually wrestle with the utter conflict between my personal ideology (that people should look after their own interests and be held accountable for the consequences of their actions) with what I know to be true in practice (that humans are highly susceptible to a range of cognitive and behavioral traps that often lead to sub-optimal outcomes). Moreover, it is incredibly frustrating to see how minimal the impact is from increasing information transparency and rolling out educational tools (which require some voluntary action) in the context of raising engagement.

What I have seen in my day-to-day experience are as follows: (1) the vast majority of employees (75%) never even log into their 401k access portals, (2) the vast majority of employees are steered into target date funds because they make no active election, (3) there is virtually no employee feedback ever around what employees think about investment options, fees, or choice, (4) employees have shown a complete inability to contemplate the general trade-off between risk and reward and how that interplays with different time horizons, (5) as such, many employees tend to be overly cautious and have wildly unrealistic expectations (I have seen many a 45 year old invest in money markets and short duration bonds and yet still were shocked that their money isn't growing 5% a year).

All that aside, I am extremely concerned about the younger generations. They save nothing. In fact, as you mentioned, most have student debt and the lure of easy credit has caused many of them to lever up even further. The stigma of personal bankruptcy is all but obsolete and sadly have even heard one of my peers openly discuss whether he should willingly default on his debt as he didn't anticipate needing credit for 7 years.

Like your article, this leaves me with a moral and philosophical question that I don't pretend to have an answer to: "If I am saving and trying to act responsibly and the vast majority of my peers are acting irresponsibly to the degree that future wealth redistributions or confiscations are inevitable, why should I strive to even do the right thing?”

I can’t deny that this is a risk; the money to fund all our promised entitlements has to come from somewhere, and 401(k)s represent a big pot of money. On the other hand, if it comes to that, I’d still rather know that I did the right thing. And, of course, if those with savings are not subject to punitive taxation, they will be much better off than those without.

To contact the writer of this article:
Megan McArdle at mmcardle3@bloomberg.net.

To contact the editor responsible for this article:
James Gibney at +1-202-624-1863 or jgibney5@bloomberg.net.