It began with a ride to the office.
This morning, the car dealer’s service department had an employee shuttle me to the office. They had to determine what went wrong with my air-conditioning at the time they repaired my windshield washers. The driver and I exchanged pleasantries about why we non-natives were living in the area. My new acquaintance was brought to town by one of the best boat builders in America. They needed him to enhance the reputation for their all hand-built, fastest boats made in America (he has since retired). It seems the best technology and design for fiberglass and resin still needs careful hands and the God given skills of a craftsman! Good technology without the skill of a craftsman often results in a leaky boat or a leaky reputation. Both are potentially disastrous for the boat owner and manufacturer.
It isn’t quite “The Perils of Pauline,” but…
“You know you should’t buy that new Subaru WRX. Sure, you really need a car, and the dollars you’ve diverted from your salary to a 401(k) retirement account each paycheck are adding up nicely, especially with that 50% match from your company. Why shouldn’t you make use of some of it now instead of waiting 30 or 40 years?”1
Anne Tergesen recently wrote about this increasingly problematic trend in The Wall Street Journal. The editors gave her article this title, “The Rising Retirement Perils of 401(k) ‘Leakage.’” That’s right, tapping into retirement funds has grown from a “trend” into a “peril” deserving its own industry title, “leakage.”2
Herbert Whitestone introduced the 401(k) program in the hopes of supplementing the defined benefit plan offered by Johnson & Johnson.3 The original concept was not to replace the ‘income for life’ defined benefit plan, but economic conditions and marketing altered the landscape. Companies could reduce both their annual cash outlay and the burden of underfunded pension liabilities. Plan sponsors and mutual fund companies extolled the virtues of employees controlling their own retirement assets.
With company liabilities reduced and employees enjoying controlling their own retirement assets, greater flexibilities were introduced into 401(k) plans. Individuals could now borrow or withdraw funds from their plan. Once people got the taste of immediate gratification through spending retirement savings, almost everything became a hardship or heavy financial need. Today, 30% to 40% of people changing jobs elect to cash out their retirement rather than leave it for retirement!4
Realizing something needed to be done, Home Depot began requiring employees wait 90 days or more after paying off one loan to initiate another. One grocery chain began offering a low-cost loan outside their 401(k) as an alternative.5 If the leaks are not plugged, people will find themselves unable to retire, no matter the intensity of their desire!
Introducing an Attitude Adjustment!
The first remedy to cure the problem lies at the feet of the retirement saver. A deeper commitment to frugality is the responsibility of the individual, not the employer or the plan sponsor. Allow me to emphasize the earlier quote, “You know you should’t buy that new Subaru WRX.” If we are to be able to live freely during the days our income will be lower, we must control the outflow of earnings while we are able to earn. Scripture tells us self-control is a fruit of the spirit (Galatians 5:23); so we must accept the personal responsibility to resist the temptation to create leaks in our retirement savings.
The Christian Churches Pension Plan helps plug the leak.
Nonprofit, ministry, and mission personnel encounter the same urges to spend retirement savings today. Many stories may be told of 60+ year olds with little or no funds available for retirement. A home purchase was unavoidable. Funds were needed to underwrite necessary education. Medical bills needed to be paid. Sometimes the desire to help a child who had fallen on difficult times is the motivation. Both issues and emotions have led to liquidations of retirement funds.
The Christian Churches Pension Plan is a classic defined benefit plan. The only time funds are paid from the Plan is upon reaching the age of 65. This restriction is unappealing to some, but it was so designed to protect the retirement income of the Participant.
The Pension Plan is seldom the only retirement savings vehicle of our Participants. Many have funds in an IRA, 403(b), Roth, or other individual account. The one constant is those who participate know their monthly income for life exists. This boat has not leaked.
1 Don’t Raid Your 401(k)! Schultz, Abby. Barron’s Next. February 1, 2017.
2 The Rising Retirement Perils of 401(k) ‘Leakage.’ Tergesen, Anne. The Wall Street Journal. April 2, 2017.
3 The Champions of the 401(k) Lament the Revolution They Started. Martin, Timothy W. The Wall Street Journal. January 2, 2017.
4 Tergesen, op. cit.
5 Tergesen, ibid.