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Editorial: Why the 401(k) is the best plan we’ve got

The word “innovation” gets thrown out more often than fruitcake at Christmas, as every company seeks to be heralded as a disruptive force in the market.

If you want to show us some real innovation, try rethinking the American retirement system.

The defined-benefit pension plans of yesteryear are not practical in a modern economy, where workers change jobs every few years, and they are not cost effective for employers, either. And if you want to hear some tales of darkness and horror, you don’t have to wait until Halloween; just ask the 20- and 30-somethings you employ what they think about Social Security.

The closest thing we have to a sensible solution is the 401(k), which provides real tax incentives for American workers to put money away for the future. It’s still not enough, as study after study shows just how imbecilic Americans are about their retirement savings plans. But with most workers able to sock away $18,000 each year in tax-deferred plans, it’s the best we’ve got right now. And many businesses are happy to offer matching programs to employees to attract talent without the problems of pension plans.

Tell that to congressional Republicans. A sweeping tax code overhaul that Donald Trump is eager to pass has the rank-and-file looking for ways to pay for big cuts for the wealthy, and the notion of capping 401(k) contributions at a paltry $2,400 a year has been floated as a way to make up some of that lost revenue.

To be fair, Trump shot down the idea on Twitter last week; to also be fair, Trump changes his mind by the hour, so we’re not yet ready to call this one dead and buried. Until some innovator figures out a way to get people to think about retirement at a younger age, and incentivize people for doing so, the 401(k) is the only vehicle we’ve got left. Slash contributions to the levels being discussed, and the best retirement advice will be to stock up on cat food, which offers some of the nutritional benefits of people food at significant savings. We’ve heard good things about Fancy Feast.

For both businesses and their employees, this is an easy area to find agreement. The importance of the 401(k) is perhaps best shown by the popularity of catch-up rules that allow the over-50 set to contribute up to $24,000 a year; many take advantage. Tax cuts we’re open to discussing, but eighty-sixing the current 401(k) contribution limit is not. This is definitely worth keeping an eye on going forward.

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