7/07/00 5:45 p.m.
More on That Gore Plan
Or, fun with statistics.

By Ramesh Ponnuru, NR senior editor

s yesterday's bulletin mentioned, I had an op-ed in the Washington Post offering some praise for Al Gore's retirement-security plan. It included the following four sentences: "Derrick Max of the Cato Institute says a worker earning $15,000 a year won't scrape together $500 for his retirement. Really? When workers making less than $20,000 a year can participate in defined-contribution plans, more than 70 percent do so. How have conservatives maneuvered themselves into the position of suggesting that poor people can't take advantage of their opportunities?" This passage has occasioned a couple of furious e-mails from Max, who thinks I have "attacked" him. (The subject line was "Nice knife in the back. . ." Cato needs to switch to decaf.)

Max's substantive complaint is that the 70 percent estimate includes plans that do not require employees to put up their own funds. Of course, the fungibility of "employer" and "employee" contributions to benefit plans is something that Cato types usually insist on. But it's a reasonable point.

The statistics Max cites, however, hardly make the case for his position. He writes, "A 1999 survey by Fidelity Investments found that only 46 percent of workers earning less than $20,000 participate in 401(k) plans with employer matches. Likewise, a 1998 National Tax Journal study based on Census Bureau data found just 39 percent of workers earning under $15,000 participating in 401(k) plans with an employer match."

The 1998 Tax Journal study is based on early 1993 data. That was eons ago. In 1993, the Dow was at 3,500 and the Nasdaq at 750. Since then, the former has tripled and the latter quadrupled. Does Max really believe that these facts have had no impact on participation rates? And if the figure I used included plans that weren't on point — since a minority of plans require no employee match — the same is true of his numbers. For the low-income workers we're talking about, Gore's plan provides a three-to-one match, which is far more generous than most plans. One would expect participation rates to rise along with the match rate, as some data suggest it indeed does. The relevant comparison, then, would be to participation rates in the most generous plans available.

And what's the bottom line here, anyway? If Gore's plan brought almost half ("only 46 percent") of the poorest workers into the new investor class, wouldn't this be a good thing? And if Gore's plan is the terrible, budget-busting, big-government entitlement program Max and other critics say it is, wouldn't low participation rates be a good thing?

More Self-Promotion
Intellectual Capital asked me why the politics of Social Security have changed; see my answer.