Sugarcoating

June 12, 2017 • 2 min read

Our understanding of the world is often not veridical. How the world is framed often becomes reality—which is why I’ve been thinking about two words recently.

The first is “feature phone,” which I put in quotes because feature phones are phones without features. They don’t do what an iPhone does. If this word was coined by “feature phone” manufacturers trying to make their phones seem better than they actually are, in this respect I don’t think they were successful. People use phones too much. I doubt anybody has walked into a store looking for an iPhone and come out with a dumb phone that was billed as a “feature phone.”

The other word that I’ve been thinking about is “defined contribution.” Like feature phone, both of these words are sugarcoating the most important part of the word. Feature phone, the functionality of your smartphone. Defined contribution, the money you receive in retirement. In a defined contribution plan, like a 401(k) plan, you put away money to buy stocks, bonds, and other investments, and then can have access to them in your retirement, but you can put away as little money as you want. Your contribution isn’t strictly defined, and, most importantly, your benefits are not defined. In a defined benefit plan (i.e. pension), your benefits are set by multiple factors (e.g. length of employment, ending salary, etc.). in a defined contribution plan, your benefits are variable. Depending on when and how much you contribute in addition to your asset allocation, you might have large or small nest egg at retirement. This is not to say that a defined contribution plan is inherently better or worse, but the name is hiding it’s defining feature: that it’s not a pension plan, it’s value is variable.

So let’s call the shots as they are. A “feature phone” is a dumbphone. A “defined contribution” plan is a variable benefit plan. 👌