Arun Muralidhar on The Public Option for 401K Plans

I received an email from Arun Muralidhar in response to my sending him a link to my previous post Elizabeth Warren: We should be talking about expanding Social Security benefits.

Hi Steve:

Thanks for the email and for the link to Sen Warren’s comments on Social Security. I totally agree with her that benefits need to be preserved, but sadly preserving benefits without making any changes to the current system will place an unfair burden on our kids. The only way to do so would be to implement our plan immediately as every delay adds to the cost of bolstering the program.

On your idea about allowing the Social Security investment option to be an offering for 401(K) plans, Franco and I had anticipated this kind of need. In fact, the World Bank pension fund was reformed in 1999 to allow such an option so that even retirees in 401Ks could be protected from market volatility, and it became the default option for staff who did not want to select equity/bond funds.

Thanks again for your thoughts.

Arun Muralidhar
Mcube Investment Technologies

Arun is co-author with Franco Modigliani of the book  Rethinking Pension Reform. I was glad to hear Arun confirm that the idea of a 401K public option is not farfetched at all.  The fact that the World Bank offers this type of investment in its pension plan, is as close as I know to an existence proof that such a plan is possible  on a national scale.

I note in Arun’s comments the use of an insight I first read about in the works of behavioral economists.  That is, that when you offer a bunch of complicated options to people, the best outcome happens if you make a good option be the default option.

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.