Dependence on 401(k) retirement accounts continues to cause a massive retirement crisis in the United States by leaving most workers unprepared for retirement. The voluntary, inaccessible, employer-centered, expensive, and consumer-driven nature of these plans have combined to make retirement a type of corporate-inspired elder abuse in America.
Behavioral economics considers the utility of permitting individual choice in decision-making settings. Many have been misled to believe that more choice is always better. Yet, this consumer-driven paradigm has been responsible for an estimated average American retirement shortfall of more than $19,000 per individual in married household in 2015. Behavioral economic workplace research instead strongly suggests that a better approach would be to use “choice architecture” to nudge workers into well-diversified default pension accounts run by independent private pension funds.
Such a successful paternalistic workplace pension model already exists. The Australian Superannuation System is mandatory, universal, not employer-centered, inexpensive, and aligns the interests of pension fund managers with fund participants. Most Australian employees do not make any choice with regard to their retirement contributions. Employer contributions default into a MySuper pension account operated by the best money managers, who invest worker pension money while charging very low investment fees.
As part of my Stewart Lecture remarks, I outline, based on behavioral economic insights, a vision for the transformation of the American 401(k) retirement system into an efficient and sustainable superannuation model.
Prof Secunda teaches employee benefits law, labor law, employment discrimination law, employment law, education law, and civil procedure. He is the Director of Marquette Law School's Labor and Employment Law Program and Faculty Advisor for the student Labor and Employment Law Society. Former U.S. Secretary of Labor Hilda Solis appointed Professor Secunda to a three-year term on the Department of Labor's ERISA (employee benefits law) Advisory Council, effective January 2013, and he now serves as the Vice-Chair of the Council for calendar year 2014.
Professor Secunda writes extensively on employee benefits, labor, employment, discrimination, and education law topics. His research focuses on: the retirement and health benefit rights of U.S. employees in comparison to other countries, the constitutional rights of public employees, the organizational and collective bargaining rights of public and private sector employees, and the rights of special education children.
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