It is well documented that both Wall Street and Corporate America are very fond of 401(k) retirement savings plans. They view 401(k)s as a perfect solution to two problems they have with traditional defined benefit pension plans. For Wall Street 401(k)s permit investment firms to charge much higher fees than they can collect from defined benefit plans; and for Corporate America they permit companies to shift investment risk and funding costs to workers. Presto, two problems solved.

But workers have been left to search for solutions to the three great problems of 401(k) plans:  Savings Risk, Investment Risk and Longevity Risk.

Savings Risk is the risk that you will not be able to save enough in your 401(k) to provide an adequate retirement. Investment Risk is the risk that even if you do save enough, you will choose the wrong investments and lose what you have saved. Longevity Risk is the risk that even if you save enough, and wisely invest, you will outlive your 401(k) account and be destitute in your final years.

While all three of these risks can doom a secure retirement, Longevity Risk is the one that you have no control over. You have some control over your savings and investment choices. But only the good Lord controls your longevity.

Of course Wall Street and Corporate America have had a ready answer to workers concerned about Longevity Risk --- when you retire just buy an annuity policy with your 401(k) account. Insurance companies sell such policies to the general public. At retirement, you hand your 401(k) account to an insurance company, and they will provide you with a monthly payment for life. The larger your account balance, the larger your monthly payment. There is just one catch to this solution --- insurance companies charge about a 20% fee for such annuity policies. But since Wall Street and Corporate America are already making out like bandits on 401(k) plans, why shouldn’t the insurance industry get a piece of the action, too?

Now, however, a large Wall Street firm is proposing a new concept as an alternative to expensive insurance policies to solve Longevity Risk. The problem is that this new concept was invented 350 years ago by a schemer in France, and has been outlawed in the United States since 1906. The concept is called Tontine.

In February of this year, Pensions & Investments magazine reported that Mellon Capital Management Company, a large investment firm, is developing a plan design that will permit a Tontine feature to be added to a 401(k) plan to produce a monthly annuity payment for life, without the 20% commission charged by insurance companies. There is only one problem to overcome --- Tontines were outlawed in the United States because they were prone to corruption and murder.

Tontines were invented for the French government in 1652 by an Italian banker named Lorenzo Tonti. The concept was simple:  a group of people would get together and each would make a contribution to a common account. Thereafter, each member of the group received a fixed interest payment each month for life from the account. As each member of the group died, the monthly payments to the remaining members became greater. The last survivor received the largest monthly payment of all until he or she died, at which time the remainder of the account went to the government. In theory these schemes worked just fine, but in real life they were subject to all of the corruption of any gambling scheme --- and were open invitations for group members to hasten the demise of their fellow members. That’s why Tontines have been unlawful in the United States for the last 100 years.

It is the greatest of ironies that a Wall Street investment firm is attempting to resurrect these ancient discredited Tontine schemes to solve a problem that didn’t exist before Wall Street and Corporate America abandoned defined benefit pensions. It would be laughable if it weren’t tragic.