Don't Trust Us With Social Security

The Hewitt study puts the returns scored by Social Security in a different light. Sure, many investors could beat the 6.25% yield the Social Security Trust Fund is getting on the funds that it has invested in Treasury securities. And I'm sure that many of my wealthier readers, who are paying the highest Social Security taxes but getting a relatively smaller future payout on taxes paid, could certainly get a better return on their Social Security tax dollars if they managed the money themselves. But the evidence remains that almost half of us, 45% to be exact, would spend our 401(k) money if given the chance, rather than roll it over to another retirement plan or keep it where it is. (The Hewitt study found that 45% of workers took the cash, 23% rolled it into another qualified retirement plan and 32% left it in their employer's 401(k) plan.)

Blowing It

Nobody beats even the most meager of investment returns if they spend, rather than invest, their savings.

The results of the Hewitt study also explain why the hottest trend in 401(k) plans today is removing choice, a move in exactly the opposite direction from that advocated by proponents of adding a private-account option to Social Security.

This year in its every-other-year survey of 450 large companies, Hewitt found that 19% of the companies automatically enroll employees in their 401(k) plans, up from 14% in 2003; 26% of those companies provide automatic account rebalancing, up from 11% in 2003. And 63% offer premixed life-cycle funds that automatically change their balance of assets as the plan participant ages, up from 55% in 2003.

Further evidence of a move away from choice comes from the survey's finding that the average number of investment options per 401(k) plan is stuck at 14, making 2005 the first year since the survey began that the number of choices in the average plan hasn't increased. By the way, 401(k) plans continue to replace conventional defined-benefit plans at these large companies: 64% told Hewitt Associates that the 401(k) plan was the company's primary retirement plan, up from 55% in 2003.