RED STATES and blue states are engaged in a battle for the heart and soul of 401(k) plans. The outcome of that struggle will likely determine whether 401(k)s continue to be savings plans or develop retirement plans.

Before you jump to any conclusion, though, you should know that my reference is not political—or, at least, I am not using the popular references of red states for Republicans and blue state for Democrats. Instead, I am referring to two distinct states of mind.

In their simples form, the different states of mind can be described as follows. The red state believes that every person should stand on his own. It is based on rugged individualism. Every employee should know how to plan for retirement, should save for retirement, should invest properly, and should be able to live in retirement on those savings and earnings. The purest version of this state embraces Roth IRAs, Roth 401(k)s, individual brokerage accounts, company stock as an investment, lifetime savings accounts (LSAs), retirement savings accounts (RSAs), and employer retirement savings accounts (ERSAs).

On the other hand, the purists in the blue state of mind hold that we are members of a community and that we can share and allocate responsibilities among employers, employees, and government. They believe that employees need help in understanding the need to save for retirement, in determining the amount to save, and in managing the investment of the savings. The blue state embraces defined benefit plans, automatic enrollment, age-based lifecycle funds, managed accounts, and tax-deductible deferrals.

Who will win? Who should win? What does it mean to employers? I acknowledge that the answer may vary, depending on the philosophical state in which the reader resides. So that you know, my bias is that the objective of tax-qualified and ERISA-governed plans is to provide retirement benefits—and, hopefully, adequate retirement benefits when coupled with Social Security—to working Americans. It doesn’t make any sense to me to have a tax-subsidized system that makes the upper economic class more “upper” and the lower economic class more “lower.” If our retirement system cannot raise the well-being of substantially all workers, then there is a serious question about whether it should be tax subsidized. In exchange for the tax money you lose, what do you expect from employers and employees? For example, do you expect well-run plans that produce broad-based benefits? Or do you believe that, so long as the opportunity is given to the employees, we should not be concerned with whether it is broadly used?

What does it mean to employers?
The answer depends on the outcome of the battle. If the red state of mind prevails, then the answer means that there will be very little in the way for changes for employer-sponsored 401(k) plans. There may be minor enhancements, such as increased deferral limits and simplification of the resting rules, and there may be expansion of Roth-type features but, by and large, plans will be operated in much the same fashion as they are today. If adequate and broad-based benefits are ever provided by 401(k) plans under this scenario, it will be because of a fundamental shift in employees perspective. That is, the change will occur when almost all employees come to understand the importance of saving for retirement, calculate the amount of savings needed to retire adequately, and become knowledgeable about long-term investing. If that is the road to the future, then we should begin to see high school and college classes in financial planning and investing, as well as adult education classes on those subjects.

On the other hand, if the blue state of mind prevails, then the burden will be on employers to change their perspective. In that case, employers will become increasingly responsible for the success of their 401(k) plans in delivering broad-based and adequate retirement benefits. Employers will see ways to improve benefits through increasing participation, assisting employees to increase their deferral rate, and improving participants investing practices. In turn, the government will support those goals by providing guidance and legislation that supports employers efforts to improve in those areas. In addition, we may see increases in the amounts of company matches and profit sharing contributions.