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Comment by Ididntdothis | Hacker News Reader

I don’t understand why 401k even exists. The money should go into an IRA controlled by the owner. The employer should have no say in this. The same should go for health insurance....

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Edit: See jlmorton's correction below. Creation was indeed accidental. Leaving my comment unchanged.

When 401k-s originally started, it was considered ground-breaking in that it was a way for employers to use their purchasing power (or choosing power) to get lower cost management of funds. It was envisioned as a great thing for employees and employers.

But we all know that is now how new laws are created. A bunch of lobbyists from financial sector lobbied to create this new instrument, which in turn directs more money to them.

Any instrument where the employee doesn't get to control the management of the money is bad for the employee.

There is a similar situation with FSA (Flexible Spending Account). That is day light robbery. Employee has to guestimate how much medical expenses they have in the year. Estimate too little and you lose the tax savings. Estimate too much and the FSA management organization keeps the unspent money. What was originally deducted from your paycheck doesn't come back to you with a 10% additional penalty. No, the person loses 100%. FSA says the money goes to the employer to offset the management costs. This is like the real-estate sales person claiming the seller is paying them.

I agree about FSA. It’s stupid in every conceivable way. But don’t they roll over now? At least to some degree.

They added 2.5 months to be able to use it, if the employer wants employees to be able to. Still useless for the same reasons though.

https://www.irs.gov/newsroom/irs-plan-now-to-use-health-flex...

As far as I know it's Health Savings Account (HSA) in a high-deductible health insurance plan that rolls over, not a FSA.

No, your probably thinking of HSA's or the fact that you have something like 30 or 60 days into the new year to use the old one.

FSA is great if you plan to change employers, there is no clawback if you empty the account in January and change employers in February. I'm not sure why this was never considered, but it's one of the few places an employee can benefit.

There is absolutely no benefit of an FSA over an HSA, other than to pad the coffers of whoever gets the leftover FSA funds if the participant can't accurately forecast their spending. FSA's simply should not exist.

True, but they are either or and a High deductible plan is a disaster for many people.

Yes, I forgot about that. But generally, since the expected cost of one's healthcare remains the same regardless of what kind of insurance plan they choose, the difference in premiums for a high deductible and low deductible plan is just the present value of the expected additional costs the insurance company has to pay because of the low deductible.

In other words, you can pay more via a higher monthly premium now, and pay less when you pay for the healthcare. Or pay less for the premium now, and pay more when you pay for the healthcare. Otherwise, the insurance company wouldn't be in business for long.

The difference is who gets to keep the investment earnings from the savings kept until you need healthcare.

FSA gives you the entire year's contribution up front, HSA does not.

FSA’s blow my mind. They’re pushed on young people who don’t need it. The loss is NOT MADE CLEAR.

And it hurts because a lot of people’s level 2 understanding of personal finance is max out your tax advantaged savings accounts.

FSA’s should be illegal. The advantages they bring to some (large!) don’t justify the theft from others.

It exists as a historic accident. It was not originally intended as a retirement savings program, but simply a way to help a small number of rich people avoid tax on deferred income invested in the stock market.

Though the program has become widely popular, it's still very clearly a giveaway to the rich. Not only are the wealthy capable of saving a larger amount, we also allow their employers to contribute up to $56,000. Obviously, most employers are not going to contribute $56,000 to their employees retirement savings plan.

Up to 80% of the tax expenditure of 401k plans is captured by the top quintile of income earners. The plans amount to welfare for the wealthy, and indeed the government loses more revenue from these tax expenditures than it spends on many welfare programs like food stamps.

This is a very strange interpretation. Lost revenue relative to what? Not having it? Is the government losing revenue by not taxing the bottom 50% of income earners, too?

The tax code is structured this way to incentivize saving for retirement. Social security exists for the same reason. The government allows you to defer taxation in these structured vehicles so that you are better able to care for yourself in your old age, so that the government doesn't end up footing the bill.

These accounts are no more a "give away" to the rich than the progressive income tax schedule is a "give away" to the poor.

>These accounts are no more a "give away" to the rich than the progressive income tax schedule is a "give away" to the poor.

Since only the rich are employed by employers who offer the benefits of these accounts, it is effectively a give away to the rich. If it wasn't a give away restricted to a certain populace, then it would be de-linked from employment and available for everyone.

> Since only the rich are employed by employers who offer the benefits of these accounts

So, being an employee of a company that offers a 401k is the new definition of "rich"?

I was referring to the concept of employers being able to contribution $56k to an employee's 401k (which only happens if employee is already highly compensated), as opposed to IRAs being capped at $6k.

Lots of employers offer these. Only if your definition of "the rich" is extremely broad is it restricted to "the rich", first of all. Certainly many people making 60-80k have access to these accounts, and quite often some level of employer matching. I guess you could call that "rich" relative to some people, but it's not what I think of when I hear "the rich".

Secondly, nobody (well, maybe some people, but mostly nobody) describes the progressive tax schedule as a "give away" to the poor, despite it representing a much larger wealth transfer than these retirement accounts.

jlmorton was referring to the employer contribution limits of $56k, which are utilized, obviously, by rich companies.

>Since only the rich are employed by employers who offer the benefits of these accounts

Everyone and their brother has a 401k today. Even many entry level blue collar jobs have 401k plans.

Depending on future tax changes, of course, 401k participation of the wealthy may actually result in higher revenue for the government.

Yes, the current income tax is deferred, and there's the possibility that when it's realized, it will be in a lower tax bracket. For the wealthy, it may not end up being in a lower bracket. However, all of the gains, when distributed, will be taxed as ordinary income; if the money had been invested in an ordinary account, there would have been capital gains, which are taxed at a lower rate.

401ks should not exist. IRAs should support the same contribution limits, with funds deposited in the same way payroll is done. This would be extremely beneficial to everyone saving for retirement, as fees would be driven down due to the ability to shop your account around, and there is zero friction in opening an IRA compared to your employer needing to sponsor and support a 401k plan.

Support retiring 401k legislation. Call your representatives.

It exists to give large employers who can afford to pay for administering those benefits an advantage over smaller employers. Same for health insurance.

It's not so much an "advantage over smaller employers" as it is a "subsidy for large employers" or a "way to spend less money to offer the same benefits so profits are higher".

That is one and the same. The subsidy for large employers is not available to small employers, hence an advantage for large employers.

True, but you're implying it has something to do with competing. It's not that, it's just about spending less money so they get to keep more.

In addition probably also a subsidy for the financial industry.

Maybe this made sense in 1978. But we are now in an era of zero fee trades, index funds, and microscopic management fees.

I am alluding to the 401k contribution limit being $20k+ versus the IRA contribution limit being $6k. There is absolutely no reason why one should differ from the other, other than one benefits those who have employers that offer 401k.

In fact, couples where one spouse who works for an employer with a 401k and one who doesn't are actually punished by lowering the contribution limit for IRA to zero. Someone explain to me why that was put into law.

https://www.investopedia.com/401-k-vs-ira-contribution-limit...

It’s pretty crazy that employers have any power over things like health insurance or retirement savings and play by different rules. These should be completely disconnected from employment. The only thing employers should compete on is things like 401k matching.

My employer subsidizes my health insurance and contributes to my 401k and a pension. It's a nice perk and part of the reason why i work for them. It's a win-win

They can subsidize as much as they want. But they receive tax benefits that are not available to people whose employer doesn’t do this. In addition they choose health insurance and 401k providers for you. I am pretty sure their incentives and yours aren’t aligned so you may actually get a bad deal. It simply makes no sense.

I'm not trying to be dense, I don't understand why this doesn't make sense. My employer offers salary, insurance, bonus, perks etc. and others do the same. I look at my options and take the offer I value the most. What part of the contract doesn't make sense? Most contracts have two parties with different incentives

The part where because company A employs 5,000 people, and can segregate their employees into a healthier than average pool (since they're working, they usually are), they get access to lower cost health insurance to pay their employees with, and company B, a new startup trying to compete, has to pay higher insurance premiums on healthcare.gov because they don't have the established group of lives to create a separate insurance pool, and because they can't afford the overhead of administrative work involved with providing health insurance benefits.

It’s all good. But it doesn’t make sense that the employer can choose to get a tax benefit. Every employee/person should have this tax benefit available no matter what the employer does. Your employer still can subsidize this, no problem.

It makes the contract more confusing, and often you don't even have complete information. You get two offers for different amounts, both with insurance - which is the better offer? If the higher offer includes worse insurance it may be the worse offer, but it is really hard to figure this out. In fact in many cases they won't even tell you enough about their insurance plan until after you accept so you didn't compare well.

Even if we ignore the above, is the plan they offer right for you? If you don't have a doctor you can save a lot of money just taking an in-network doctor they assign to you - so long as they have enough doctors in network, and doctors are qualified it doesn't matter how many other doctors could see you. Or maybe you have one you like and are willing to pay extra for that. Both are reasonable choices for different people - but you don't get to choose. I'd personally take an extra $5/month in my pocket in exchange for a small in-network list of doctors (so long as it is large enough that I can get help when I need it), my wife is pickier and would pay an extra $10 to choose whatever doctors seems good at the moment - both are valid choices (I'm not sure what we would do if we actually had any choice in the matter: the conversation is only hypothetical now)

Employer based health insurance and what not makes it harder to compare job offers and increases your costs to switch employers.

If instead, your employer simply paid you the money they would have paid to subsidize these things, and you paid for the services you wanted, you could actually keep your services in case you changed jobs or lost your job or took time off or whatever. It would be pretty hard to setup an individual pension that behaved like an employer pension, but pensions are already on their way out.

Unfortunately the federal government subsidizes this behavior so I would need to spend more than what my employer does.

Yes, and the question is why should the federal government subsidize distorting the employment market in this fashion? Or at least, why should they continue to do so.

And even if it does. I don't really see the reason that I should be locked into the employers 401k and not be able to choose my own.

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