January 4, 2018
New Yorker Cartoon Considers 401(k)s
This New Yorker cartoon by Trevor Spaulding is cute, but – spoiler alert – it’s not quite right.
A company offering a 401(k) retirement savings plan to its workers is a good thing, but it’s no “favor,” noted my long-time editor Steve Sass, an economist with a hawk eye for inaccurate retirement information. Setting up and funding a 401(k) is a big expense for employers. But many think it is worthwhile, because 401(k)s – and, more so, employers’ matching contributions – help them attract and retain the sharpest, most productive, or most-skilled workers.
Another employer calculation is that the income tax deduction employees get for saving, which costs the employer nothing, is especially valuable for those on the payroll who earn the most money and, by definition, pay more taxes. It’s a neat outcome that the tax deduction most helps those presumably doing the most for the bottom line, though the government does limit how much highly compensated employees can contribute based on how much the rank-and-file workers are contributing.
But, it’s no fun to criticize a cartoon!