Ruth Bass: The 401(k) attack paves the way for rich to get richer

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RICHMOND — If you remember when kids put money in savings accounts at school, then you're already required to take payments from your 401(k). How strange to think of teachers getting 50 cents or a dollar from their pupils, not as lunch money but as contributions to a passbook savings account at a local bank. For awhile every week, teachers became tellers.

Banks did benefit from this practice, which began in the 19th century, continued well into the 20th in lots of communities and still exists here and there. The founding philosophy was not so much to help banking as to educate children in the virtues of "thrift, frugality, diligence, honesty and self-responsibility," according to a researcher. Quite a lot for a kid not yet five feet tall to absorb.

Plenty of Americans apparently didn't process the message then and, these days, would walk away from the list of what 19th-century citizens thought was a proper approach to life. Statistics indicate that 34 percent of us have zero dollars saved, another 35 percent have less than $1,000, and only 15 percent have $10,000 or more. The advice is to have a little slush fund put away for that $500 expense that may pop up suddenly and to have a lot more than that if a comfortable retirement is in the future.

Enter the 401(k), quickly adopted a few years back by companies that wanted to replace their pension plans with this option. The deal was that the employee could put in a certain percentage of his or her salary, and the company would match part of that. When it was proposed at The Berkshire Eagle 30-something years ago, it was amazing how many workers were doubtful, worried that somewhere in there was a catch waiting to snag them. But many opted to do it, putting away a little piece of income before paying taxes on it — and then paying income tax on the amounts taken out after the age of 70 .

By and large, it's a good thing. The savings is deducted automatically, before the employee can think about spending it, so it's really never missed. It's invested. It grows. And for many people, the income tax rate is lower when they take it out than it was when they were working.

Now comes Congress with a brilliant thought or two. If they could just lower the amount that people could set aside in the 401(k), they'd get some extra income tax right now from those people. And that would make up for some of the tax cuts they hope to include in so-called tax reform bills before the end of the year. The increase in taxes will certainly hit the middle class 401(k) people and would finance proposed cuts for the nation's richest and its corporations. It boils down to getting tax money now instead of in the future.

Someone in Congress said they'd create other incentives for people to save. But it's already established that Americans don't voluntarily save much from their paychecks. Perhaps we'll be back to getting a set of oven-proof casseroles or an electric blanket if we open a savings account. One of the proposed alternatives, supported by economics Nobel Prize winner Richard Thaler, is that companies automatically enroll workers into 401(k) plans, forcing the savings and ensuring a nest egg for retirement.

President Trump has, more than once, said he doesn't want Congress to mess with the 401(k) set-up (yay!). The man, however, has been known to change his mind. It would appear, however, that for 62 million Americans with 401(k) plans, Congress is bent on cracking that nest egg.

Ruth Bass enjoys the foliage in Richmond. Her website is www.ruthbass.com.

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