The Wall Street Journal-What Happened to Editorial Oversight

As a long time reader and subscriber of The Wall Street Journal I was stunned to read the 401(k) piece on the front page of the February 19th Saturday edition. The article included inaccuracies, misrepresentations, straw-man analogies and inappropriate examples with no balancing views. To add to the outrage none of the letters to the editor published today, February 24, commented on the article’s deficiencies or were even relevant to the article’s main points. Worse was the decision by the Journal to publish a letter representing that 401(k) fees are 300 to 400 bps--a total falsehood.

The 401(k) system is and will to be the most effective system for most average workers to accumulate retirement savings and employers should be applauded for accepting the liability exposure, cost and management distraction these plans impose. I do not understand the Wall Street Journal’s decision to join those denigrating the 401(k) system.

Following is the letter I sent to The Wall Street Journal which was not published.

Dear Editor:

The WSJ February 19, 2011, 401(k) article includes a number of errors. The article begins calling those retiring today “The 401(k) generation.” However, only a very small fraction of today’s retirees have invested in a 401(k) plan over their working career. It is more accurate to refer to those retiring in 2030 as “the 401(k) generation.” Secondly, the article assumes people need 85% of their working income to maintain their standard of living in retirement. Although a projected income replacement ratio is useful as a planning tool for younger workers, it can be misleading in calculating your real income need in retirement. What is actually needed to replace a pre-retirement standard of living in retirement varies widely and is tied to the individual’s pre-retirement expenditures, not what they earn. Thirdly, the article references the financial preparation of someone retiring at age 60. The standard retirement age for full eligibility for Social Security benefits is currently age 66. The use of an earlier age reinforces the myth that an earlier retirement is possible without heroic levels of personal savings, or eligibility for a pension plan with an earlier normal retirement age, typically available only to government workers. Finally, the article infers that the recent periods of financial volatility have damaged the 401(k) as a savings alternative. The recent financial system failures affected every investor and saver in America, not just those in a 401(k). The 401(k) system like everyone else depends upon an appropriately managed and regulated financial system. We hope that the responsible parties are committed to meaningful reform. It is important to note that because of employer matching contributions and the smoothing effect of dollar cost averaging, virtually every current 401(k) participant’s account balance exceeds the amount of their personal contribution into their plan. The bottom line is that 401(k) participants have generally experienced a far better return than those saving outside a plan.

David Wray, President
Profit Sharing/401k Council of America