Would workers stash more in their 401(k) accounts for tomorrow if they had credit-card access to the money today?
Francis Vitagliano, a pension consultant and inventor, thinks so. For 25 years, he has pitched his idea that would give 401(k)-plan participants instant access to $10,000 of their retirement stash. They would then pay themselves back on a monthly basis.
"It's very difficult to get individuals to put away money and lock it up when they don't have the option of touching it for a long time," Vitagliano says. "This option will cause people to contribute more money to their accounts."
It might sound wacky, but he bases his theory on the Nobel prize-winning research of his late business partner, Franco Modigliani, who studied how people spend and save money. The two patented the 401(k)-card concept in 1993 and have been trying to get the financial-services community to give it a try ever since.
In the fall, it looked as if the 401(k) card's time might have come. A flurry of news articles said ING, a global financial company, would soon launch a pilot project. But the ink was hardly dry on the newsprint before ING started to back away.
"As a company, we have not reached a definite conclusion with respect to the theory of how a credit-card-like instrument may or may not enhance 401(k) participation," ING spokeswoman Caroline Campbell told Kiplinger's. A few days later, she closed the door completely: "After weighing the pros and cons, we have decided not to actively pursue it at this time."
Although David Wray, president of the Profit Sharing/401(k) Council of America, acknowledges that the availability of 401(k) loans does increase plan participation, he dismisses Vitagliano's idea as one whose time has passed. When the idea was first proposed, few 401(k) plans offered loans. Today, 87 percent of them do.
The latest numbers show that about one in four 401(k)-plan participants who can borrow from their accounts has an average loan balance of more than $6,000. Vitagliano still thinks his idea is valid, noting that the minimum 401(k) loan amount is often $1,000.
"People end up borrowing more than they need," he says. A credit card would "allow them to borrow less, even if it's only $50 for a Saturday night."