Employer mandates limit employee choice
As I do every Sunday morning I picked up the Business section of The Washington Post this morning, looking forward to columns by Steve Pearlstein and Michelle Singletary. Though I don't always agree with their points of view, their pieces are always smart and thought provoking.
This weekend was no exception. Mr. Pearlstein writes about a small Baltimore manufacturer asking, "But what if the problem [of slow growth and stagnant wages] and the solution have little to do with public policy and everything to do with the way private companies compete in the free market?" Ms. Singletary writes about retirement and debt with the worry, "[Multi-employer] pensions are going broke for several reasons – membership declines, an aging workforce and downturns in the stock market."
But it was a few lines inside each column that caught my eye. Of the Baltimore manufacturer Mr. Pearlstein writes: "Everyone has health insurance and a 401(k) plan with a company match up to 4 percent of base pay." Of pensions Ms. Singletary writes: "We are increasingly on our own. Our retirement income is going to largely depend on how much we've managed to save and invest for ourselves."
I run a small business and choose to offer employers fully paid health insurance and a 401(k) plan with matching, not because I'm legally bound to do so but because – in part – the marketplace alternatives are imperfect, unequal substitutes. And why is that? Because of public policy.
Start with health insurance. Though elected officials have touted its health insurance exchanges, the Affordable Care Act's "marketplaces" are not free markets at all but government-run, state-bound cafeterias where choices are set by fiat rather than consumer needs and wants. As an employer I am bound by state lines, unable to shop nationwide for the plans that best fit employee needs.
Next up: retirement plans. About this time last year I wrote about the disparity between employer-provided retirement savings plans and Individual Retirement Accounts (IRAs). As an employee I'm stuck with my employer's choices for investment products within the 401(k). For my company it's a little bit of split personality because I choose the funds. But I'm stuck with a limited selection of high-cost funds offered by 401(k) plan providers that are rarely best of breed. And if I opt out of the employer plan to get lower costs and greater selection in an IRA, I'm personally stuck with an annual contribution limit that's a third of the 401(k).
Public policies do make a difference in individual and employer options and choices. Be it retirement or health insurance options, legislators have made choices for us without giving us the chance to opt out for something we deem as better. ACA calls them "marketplaces" but they're more akin to state-run liquor stores: limited selection, limited locations, and don't you dare cross the border. IRAs are faint substitutions for 401(k) plans if your goal is a secure retirement, but legislated advantage ensures that financial services firms don't have to compete with low-cost, self-guided IRAs.
Some people might argue that healthcare and retirement consumers don't have the knowledge to purchase the right plans. But do employers have that knowledge? And we've seen public and private pension plans become insolvent because promised payouts were too great or investment outlooks too optimistic.
What I found interesting is that Mr. Pearlstein touts private companies in a free market for economic growth but employer-provided tax-advantaged health insurance and retirement savings plan –both constructions of public policies that constrain employee choice. And Ms. Singletary – a strong advocate of personal financial responsibility – seems to bemoan the demise of traditional pension plans that confer responsibility to a third party.
Just as a central government makes all decisions in a command economy, our government makes some private economic decisions for us with public policy. While many of us yearn for certainty through life's journey, there are no guarantees. Smart personal choices are best made when government advocates markets and choice, not limits and favoritism.
