One of several big problems with 401(k) plans—tax subsidies for retirement savings—is that while some of the subsidy accrues to savers, some of it accrues to fee collectors who you end of paying for managing the plan. The fees can be rather large, and they can vary substantially according to the aggregate size of the plan:
The issue is that there are fixed costs associated with administering a 401(k) plan. If you work for a giant company with tens of thousands of employees, then those costs are spread across a huge pool of people. But if you work for a midsized firm, those costs weigh heavily on each individual plan recipient. And a handful of basis points a year really adds up over the long term:
This all gets at the underlying paradoxical and crappy nature of the 401(k) approach to retirement stability. Yes, it’s important for households to save. Yes, most Americans save too little money. But the 401(k) concept is built on the ideology of consumer sovereignty, individual choice, and democratic capitalism in a context where all of those ideas are totally inappropriate. The best 401(k) plan to be a part of is a really gigantic one that limits your choices to the technocratically approved low-fee diversified index fund. But in a realm where large scale and limited choice are the outcomes you want, what you want is a big stodgy boring government program, not a vast array of options orchestrated by HR departments all across the land.
What you want, in other words, is Social Security. And if you want the program to be prefunded rather than pay as you go, then you want to give Social Security a real trust fund that’s collectively invested. But you don’t want tax subsidies for middle-class families to go play in the casino followed by a lot of personal finance columns about how the correct strategy at the casino is to avoid all the games and attractions.