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Tuesday, September 11, 2018

ANALYSIS/OPINION:

President Trump’s pension expansion initiative could be his administration’s most revolutionary undertaking. Or rather, its most counter-revolutionary. During America’s momentary flirtation with socialist chic, nothing could be healthier than a good old capitalist cure-all. Giving more Americans ownership stakes in the economy is just the way to administer it.

Recently, Mr. Trump issued an executive order directing federal agencies to come forward with recommendations to “expand access to workplace retirement savings plans for American workers.” The targets are small and midsize businesses and workers outside the conventional employer-employee relationship — part-time workers, self-employed, sole proprietors and working owners.


The reasons for this attention are clear: These businesses and workers’ low participation in private pension programs. The White House announcement points out just half the workers in small businesses have access to pension plans: “53 percent at establishments with fewer than 100 workers are offered a workplace retirement plan.”

To increase participation, the effort will review expanding eligibility standards, so more are included on the front end. The next focus is on reducing regulations and participation complexity. On the back end, there will be a review of distribution requirements to ensure they match current mortality tables — the longer money can stay in, the more for retirees later.

All this sounds very prosaic, but it is the nuts and bolts of pensions. Even more importantly, pensions offer the nuts and bolts of capitalism. They start a definite progression: Work, savings, investment, ownership. It is a four-step process to capitalism.

Anyone who has ever worked knows: It is not how much you earn, but how much you save, that determines long-term wealth. That seemingly simple shift contains the transition from labor to capital. A profound transformation takes place in the move from working for your money, to your money working for you.

There could be no better answer to today’s siren song of socialism. This mythical society promises someone else willingly supplying my needs — affluence despite indolence, with the latter becoming more attractive as the former becomes more guaranteed.

Long the stopgap to this charade, many articles and polls now argue America is succumbing to it. Carried along by an apparent leftist insurgency to President Trump’s administration, candidates are now running under the socialist label; before they used to run from it.

Unsurprisingly, this infatuation is particularly strong among the young. If wealthy, their parents have supported them. If poor, they want a share of what they have only experienced indirectly through the media. If in between, they have no savings — and possibly substantial college loan bills — and start on the employment ladder at their lifetime’s lowest earnings.

What awaits can scare them even more. Their only pre-existing retirement option is Social Security, America’s Ponzi scheme. With wealth only transferred between generations — but not invested, let alone earned or owned — it is a game of musical chairs where the next generation is left standing so the previous one can sit.

That is particularly unattractive today, when young workers face paying a tidal wave of Baby Boomer benefits and a low tide of future workers to pay theirs. The young and low-income workers will therefore benefit the most from the Trump administration’s plan to look at ways to expand pension participation.

The young will benefit because they have the longest time to save and invest. The longer they can participate in pension plans, the more they will earn and save too, and the longer their investment will earn.

Lower-income workers — and younger workers are a subset here because they obviously begin work at their lowest earning years — will benefit because they will immediately have an opportunity to become investors. Because they are lower income, investment opportunities may be few and far between for some time. A mortgage down payment could take considerable time to accumulate and other demands could pre-empt it. For some who grew up outside a savings and investment climate, it might not even seem an option.

A pension plan enables savings and investing immediately and simply. There is an existing structure for it, which may otherwise be lacking for an individual. And equally importantly, both fundamentally alter how a worker views her earnings and opportunities. They change more than simply an individual’s net worth.

For these reasons the pension expansion initiative is more important than simply changing projections of Americans’ retirement savings. It offers the chance to refute socialism’s biggest fallacy: That savings and investment are somehow beyond every individual’s ability; that only the state can somehow accomplish that. By creating individual savings and investment immediately and permanently, that lie is also immediately — and hopefully permanently — disproved.

• J.T. Young served in the Office of Management and Budget and the Treasury Department.


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