>At 09:22 AM 7/14/01 -0700, Jordan Hayes wrote:
>> > do employers have to provide 401ks?
>>nope.
>
>so, what does an employer get out of providing a 401k, as opposed to
>a fatter paycheck? does it actually amount to anything?
401k plans, or rather defined-contribution plans in general, have risen first of all because of employers' desire to weasel out of a number of financial risks & burdens typically placed upon them by defined-benefit pension plans:
***** Defined Benefit Pension Plans are Better for Employees
Defined benefit pension plans provide guaranteed income security to workers for their retirement; no matter what happens in the stock market, how long an employee lives after retirement, or whether he or she becomes disabled.
Employees are not subject to investment risk. Pension funds invest assets with an optimum mix of growth potential and risk. Studies show that individuals responsible for their own retirement income typically invest too conservatively, and thus do not adequately protect their retirement benefits from inflation.
Retirement benefits are not dependent on employees' ability to save. Lower-income workers and workers facing declining incomes lose twice under defined contribution plans, where employer contributions are often tied to employee savings. While defined benefit plans often have mandatory employee contributions, their contributions provide workers a secure retirement.
Defined benefit plans provide cost of living adjustments and pension formulas that are tied to the highest-paid years, which protect employees from inflation while they save throughout their working lives.
Death and disability insurance, which are typically provided under definded benefit plans, provide income security for participants. Defined contribution plans provide no insurance benefit in case of an employee's death or disability; employees must purchase this coverage at additional cost.
Defined benefit plans provisions can allow for portability with shorter vesting periods, reciprocity agreements, and buybacks for prior or related service. Defined benefit plans may also allow employee borrowing....
Defined Benefit Pension Plans are Better Public Policy
Defined contribution plans shift the cost of administration onto employees. Employees pay significant management fees to mutual funds and other plan services directly out of their retirement savings, whereas pension funds use their own managers.
Defined contribution plans can create other social costs. Individuals who fare poorly investing their defined contribution plan account, or who outlive their retirement benefit, may use more social services and need financial assistance such as Medicaid and welfare benefits in their retirement years, offsetting any perceived "savings" to taxpayers.
Defined benefit plans promote retirement savings among lower-income workers, by mandating a single, low level of employee contribution to participate....
American Federation of State, County and Municipal Employees, AFL-CIO Department of Research and Collective Bargaining Services 1625 L Street, NW Washington, DC 20036 11/6/97
<http://www.afscme.org/wrkplace/pensfact.htm> *****
There may be more ways than above through which 401k plans allow employers to shift financial risks & burdens onto employees.
Yoshie