The section of the Internal Revenue Code that made 401(k) plans possible was enacted into law in 1978. It was intended to allow taxpayers a break on taxes on deferred income. In 1980, a benefits consultant named Ted Benna took note of the previously obscure provision and figured out that it could be used to create a simple, tax-advantaged way to save for retirement. The client for whom he was working at the time chose not to create a 401(k) plan. He later went on to install the first 401(k) plan at his own employer, The Johnson Companies (today doing business as Johnson Kendall & Johnson). At the time, employees could contribute 25% of their salary, up to $30,000 per year, to their employer’s 401(k) plan.
My late mother left my brother and me two cars, a largely worthless house, a checking account, some debts, and a retirement account that just about covered the debts. My plan was to cash in the retirement account with no delay, and clear the debts. My brother advised against it, insisting that I “roll over” my half of my mother’s retirement account into my own retirement account. Since my brother was taking the time (and time off from work) to deal with the paperwork, I agreed to do it his way. Later, when the bank called in the outstanding debts, he reversed his position and agreed that I should cash in my half of the retirement account to clear my mother’s outstanding loans. A month, and a “small” brokers fee later, all of my mother’s old debts have been cleared.
My brother insists that he wanted to “roll over” my mother’s retirement account to avoid paying taxes, and that’s probably true. Part of me, however, also believes that he was trying to teach me “financial responsibility,” something that I, as the family loser and black sheep, have never had. The more I think about it, the more I realize that they’re both true, that the 401k is basically a gift by the federal government to the rich made possible by brainwashing a large part of the middle-class that “financial responsibility” means setting aside a little part of your paycheck each week and giving it to Wall Street.
What do I mean? I’m no financial expert, but I do know that the IRS enacted the law that made the 401k possible in 1978, at the dawn of the neoliberal takeover of the American political system. A few years later, Ronald Reagan put the Social Security trust fund into the general revenue . Remember how people laughed at Al Gore for saying it should be put into a “lock box?” In the late 1990s, Bill Clinton had planned to partially privatize Social Security, a plan that was derailed by the Monica Lewinsky scandal. Bush tried, and failed, in 2005. Obama attempted to make Social Security privatization part of a “grand bargain” in 2013, and none of this would have been possible without the 401k, the idea that our “retirement” should be part of an overall investment strategy managed by a public, private partnership between Wall Street and the federal government.
Even though it’s presented as a favor to the middle-class — you don’t have to pay taxes on your income as long as you save it for retirement — it’s really a federal subsidy to the banks. If it were really about “saving” you should have the option to specify a part of your paycheck each month that you can take tax free and hide under the mattress, but you can’t. You need to put it in a fund that will then be invested on Wall Street. Try to imagine just how much money ordinary middle-class people have fronted Wall Street since 1978. Try to imagine what would happen if something went wrong, if those banks helping us to “plan responsibly” acted irresponsibly?
We don’t have to imagine. After the repeal of Glass-Steagall in the late 1990s, the banks did just that. When it all came crashing down in 2008, Wall Street used those retirement accounts as a gun to the head of the American people. Bail us out or the whole system comes crashing down, and you lose everything. The 401k gave the American people a stake in the survival of their own ruling class. At the moment we should have been letting the banks fail and dragging the rich out of their mansions to the guillotine, we suddenly discovered that if the rich failed, we failed. If Mr. Fat Cat McScumbag lost his penthouse on 5th Avenue and his yacht, little Johnny Middle Class lost his college fund. We had been made hostages, not only by the repeal of Glass-Steagall, but by a decades old law that had been presented to us as a gift.
In other words, the 401k is basically free stuff for rich people. Act irresponsibly. Take that money and spend it on hookers and beer.