In my book “Make the Poor Rich” I concentrate on the rewards a 15% diversion of payroll taxes* into the personal accounts will do to improve the financial health of all Americans. I do mention how such personal accounts will eliminate the need for the private sector to supplement retirement needs with such devices as 401(k) pension plans. I just never quantified just what the elimination of 44,000 or so 401(k) plans would do for the private sector.
Let’s take Wal-Mart for an example. Wal-Mart is under immense pressure to grant benefits to its workers. The pressure is being exerted by the media, unions, academe, the Democrat Party all spearheaded by MoveOn.org. Wal-Mart has flourished as a non-union shop in passing wealth to its customers through lower prices not saddled by wages and benefits imposed on it by these huge union monopolies. Lost in the propaganda by the Washington Post and its cohorts in the media is the fact Wal-Mart contributes 4% of its permanent workers (“associates” to them) wages to a 401(k) plan. Such plans are nothing more than personal accounts that build a nest egg for the worker’s retirement.
Only a small fraction of American workers are covered by 401(k) plans yet the company targeted by the above mentioned organizations, WalMart, is one of those companies that do provide their “associates” with such a plan. As the wage costs of Wal-Mart run into the billions, the savings my plan would generate to that company and its shareholders would be immense. They would be saving that 4% as well as the logistical costs to maintain it.
At the same time their workers would be building nest eggs of enormous size under my plan. If for example workers at Wal-Mart only make $19,000 a year as the Washington Post so contemptuously suggests then the nest egg of its “average” worker would accumulate under my plan during a 40-year working life in 2006 dollars would be over $1.5 Million assuming their 15% of payroll taxes” was put into indexed stocks and those indexed stocks performed like the S&P 500 has performed since 1871 for 40-year periods.
Now what more can opponents of Wal-Mart ask for? These underpaid workers end up with a nest egg of $1.5 Million and they will be able to get a monthly check from the NEW Social Security of $12,500 (2006 dollars) if their 40-year rate of return continues. Now that monthly check means they will retire at the rate of 789% of the $19,000 of annual wages they were earning at Wal-Mart. All these figures are stated in 2006 dollars to make them understandable to today’s workers as well as the intelligentsia.
The benefits of my plan to Wal-Mart runs into the tens and possibly hundreds of millions for Wal-Mart alone because they would be relieved of spending the 4% they now spend in contributions to their worker’s 401(k)s. When all the contributions of all 44,000 401(k) are considered, the savings to the private sector will eventually run into the hundreds of billions. When all the government and special interest pensions like CalPers are replaced by personal accounts the savings will eventually run into the trillions.
The $12,500 monthly check doesn’t end the story. The worker will still have his $1.5 Million nest egg to pass on to his family. He only lived off the income from that personal account. He now can pass the nest egg on to make the collective American population wealthier at the end of the day than it was the day before. This structural improvement to the American economy will be self-fulfilling; because “Wal-Mart” reduced its costs, its profit will increase. Increased profits mean higher stock prices. Spread over all the American economy the rate of return on those personal accounts should soar if they are invested in stocks in the most exceptional financial engine the world has ever known, the American capitalist system.
Another benefit to Wal-Mart and its employees is the fact that the 7.65% of the workers wages that Wal-Mart matches and pays into the government will now go directly into their employees pocket in the form of a contribution to their personal account. That means Wal-Mart could – under my plan – represent to their employees that one-half of that $1.5 Million nest egg is directly attributable to Wal-Mart’s contribution.
* The 15% comprised of the 7.65% deducted from the worker’s paycheck and the 7.65% matched by the employer. The self-employed have to pony up the entire 15.3% themselves.