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House Democrats contemplate abolishing 401(k) tax breaks
Investment News ^ | 10/12/2008 | Sara Hansard

Posted on 10/16/2008 8:32:17 PM PDT by Keyes2000mt

Powerful House Democrats are eyeing proposals to overhaul the nation's $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.

House Education and Labor Committee Chairman George Miller, D-Calif., and Rep. Jim McDermott, D-Wash., chairman of the House Ways and Means Committee's Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.

A plan by Teresa Ghilarducci, professor of economic-policy analysis at The New School for Social Research in New York, contains elements that are being considered. She testified last week before Mr. Miller's Education and Labor Committee on her proposal.

House Education and Labor Committee Chairman George Miller, D-Calif., and Rep. Jim McDermott, D-Wash., chairman of the House Ways and Means Committee's Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.

A plan by Teresa Ghilarducci, professor of economic-policy analysis at The New School for Social Research in New York, contains elements that are being considered. She testified last week before Mr. Miller's Education and Labor Committee on her proposal.

"The savings rate isn't going up for the investment of $80 billion," he said. "We have to start to think about ... whether or not we want to continue to invest that $80 billion for a policy that's not generating what we now say it should."

"From where I sit that's just crazy," said John Belluardo, president of Stewardship Financial Services Inc. in Tarrytown, N.Y. "A lot of people contribute to their 401(k)s because of the match of the em-ployer," he said. Mr. Belluardo's firm does not manage assets directly.

Higher-income employers provide matching funds to employee plans so that they can qualify for tax benefits for their own defined contribution plans, he said.

"If the tax deferral goes away, the employers have no reason to do the matches, which primarily help people in the lower income brackets," Mr. Belluardo said.

"This is a battle between liberalism and conservatism," said Christopher Van Slyke, a partner in the La Jolla, Calif., advisory firm Trovena LLC, which manages $400 million. "People are afraid because their accounts are seeing some volatility, so Democrats will seize on the opportunity to attack a program where investors control their own destiny," he said.

The Profit Sharing/ 401(k) Council of America in Chicago, which represents employers that sponsor defined contribution plans, is "staunchly committed to keeping the employee benefit system in American voluntary," said Ed Ferrigno, vice president in the Washington office.

"Some of the tenor [of the hearing last week] that the entire system should be based on the activities of the markets in the last 90 days is not the way to judge the system," he said.

No legislative proposals have been introduced and Congress is out of session until next year.

However, most political observers believe that Democrats are poised to gain seats in both the House and the Senate, so comments made by the mostly Democratic members who attended the hearing could be a harbinger of things to come.

ADVICE AT ISSUE

In addition to tax breaks for 401(k)s, the issue of allowing investment advisers to provide advice for 401(k) plans was also addressed at the hearing. Rep. Robert Andrews, D-N.J., was critical of Department of Labor proposals made in August that would allow advisers to give individual advice if the advice was generated using a computer model.

Mr. Andrews characterized the proposals as "loopholes" and said that investment advice should not be given by advisers who have a direct interest in the sale of financial products.

The Pension Protection Act of 2006 contains provisions making it easier for investment advisers to give individualized counseling to 401(k) holders.

"In retrospect that doesn't seem like such a good idea to me," Mr. Andrews said. "This is an issue I think we have to revisit. I frankly think that the compromise we struck in 2006 is not terribly workable or wise," he said.

Last Thursday, the Department of Labor hastily scheduled a public hearing on the issue in Washington for Oct. 21.

The agency does not frequently hold public hearings on its proposals.


TOPICS: Breaking News; Politics/Elections
KEYWORDS: 2008; 401k; democratcongress; democrats; economy; elections; govwatch; ira; lp; nobama08; obama; retirement; rothira; socialism; taxes; wealthredistribution
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To: Squantos; Keyes2000mt; Jeff Head; Travis McGee; SLB; Lurker
This economic meltdown, and all of the societal decay that has accompanied it, are no 'accident'. They are meticulously manufactured crises. A means to an end. I am simply astounded at the speed with which the implementers have been able to accomplish their goals, and the lack of any meaningful outrage. Heck, one of the major collaborators is about to be elected President.

At this stage, I do not even know whether there is anymore any recourse for the 'average American'. But it would do us all well to know where we stand, what it appears the future will hold for us all, and why.

Today, anyone who musters the courage to stick his head above the crowd and try to educate the masses is considered a conspiracy theorist by ninety-nine percent of his fellow citizens.

Why?

Because the truth has been so effectively buried by the mainstream media, and political rhetoric that also seeks to hide that truth has been honed to a virtual artform.

Combine the media's virtually unbridled power, and the covert agenda of many of our 'leaders', with the general apathy and ignorance of the populace and you paint a portrait of a socialist/Marxist steamroller, gaining huge momentum, with virtually nothing of significance standing in its way.

When I contemplate that small handful of Americans, many of whom can be found here on FR, attempting to awaken their countrymen to the true nature of this (and past, and future) debacle(s), I picture something akin to that lone Chinese student standing in front of the tank in Tiananmen Square back in 1989.

Only difference is, we're armed.

~ joanie

61 posted on 10/16/2008 9:06:09 PM PDT by joanie-f (If you believe that God is your co-pilot, it might be time to switch seats ...)
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To: Keyes2000mt
My daughter did everything right...she's put money away for 21 years in 401k's. She's lost half of it in the last few weeks.

I'm 65 and draw yearly on a very small investment to supplement my SS and working part time. My investment is now 1/2 of what it was. I'm devastated.

62 posted on 10/16/2008 9:07:25 PM PDT by Sacajaweau (I'm planting corn...Have to feed my car...)
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To: berdie

later


63 posted on 10/16/2008 9:07:38 PM PDT by berdie
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To: Keyes2000mt
House Education and Labor Committee Chairman George Miller, D-Calif., and Rep. Jim McDermott, D-Wash., chairman of the House Ways and Means Committee's Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.

Isn't that the point of Social Security?

This is going to end very, very badly.

64 posted on 10/16/2008 9:08:18 PM PDT by rabscuttle385 (Baldwin/Castle '08 - Gilmore for Senator from Virginia '08)
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To: Lorianne
Will they go after my 1.888% savings account interest too?

They already do.

65 posted on 10/16/2008 9:08:46 PM PDT by !1776!
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To: Keyes2000mt

I am delighted that I earn less than $250K a year so that my taxes will not go up under Obama. ... Huh!? my 401K deduction has been taken away? Oh, I guess that means I now make over $250K. I get screwed twice!


66 posted on 10/16/2008 9:08:59 PM PDT by mlocher (USA is a sovereign nation)
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To: rabscuttle385

Hide your money...They’re coming....


67 posted on 10/16/2008 9:10:00 PM PDT by Sacajaweau (I'm planting corn...Have to feed my car...)
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To: nufsed

Excellent analysis. 401Ks are a win-win for the gov’t and the working class stiff.


68 posted on 10/16/2008 9:10:41 PM PDT by mlocher (USA is a sovereign nation)
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To: Proud_USA_Republican

“I can’t even begin to fathom how they believe taking way the pre-tax benefit of contributing to your main retirement account is a good thing.”

Easy, this scheme would take control of money away from individuals and give it to government. To them, that’s as great thing.

And as someone else said, libs. view tax breaks for the reasonably well off as subsides, using “government” money to give savers and investors an unwarranted break.


69 posted on 10/16/2008 9:10:56 PM PDT by Will88
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To: Keyes2000mt

“Baghdad” Jim McDermutt is a public embarrassment, and I’m not surprised that he would be behind something like this. I have no doubt that they will be working hard on this legislation when Pelosi calls the Congress back into session after the elections.

Stupid and sickening.


70 posted on 10/16/2008 9:10:59 PM PDT by Bean Counter (Stout Hearts.....)
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To: Keyes2000mt
When the plan for independent retirement accounts was passed, I said it was more to knock people out of their Social Security than anything. We will have means testing for Social Security, the dems have talked about already. They also have talked about taking away mortgage deductions.
71 posted on 10/16/2008 9:11:02 PM PDT by Razz Barry (Round'em up, send'em home.)
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To: The_Media_never_lie
Why not drive all the 401k investors out of the market?

Next thing you know, they will remove the tax-free status of distributions from Roth IRAs and Roth 401(k)s and make holders of such retirement arrangements pay taxes twice: once when the contribution is made, and a second time when the amounts are distributed.

72 posted on 10/16/2008 9:11:12 PM PDT by rabscuttle385 (Baldwin/Castle '08 - Gilmore for Senator from Virginia '08)
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What they don't tell you is that your contributions into this scheme will be "invested" in treasury bills. That way congress can spend it. Since you also have to pay the interest on those t-bills through your taxes, you are in fact paying yourself interest--which is a zero sum gain concept. Much the same as borrowing from your own savings account and paying yourself back with interest.

Only by investing in companies that put your money to work can you realize a capital gain. A democrat congress will simply be spreading your retirement money around--for the good of everyone, you know.

73 posted on 10/16/2008 9:11:29 PM PDT by zacharycole
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To: Keyes2000mt
whether or not we want to continue to invest that $80 billion for a policy that's not generating what we now say it should."

Did everyone catch that? "....not generating what we now say it should."

Our retirement and savings plans are suppossed to maintain a level of return that they say should be met?

74 posted on 10/16/2008 9:12:03 PM PDT by TexasNative2000 (Be bold. Be brave. You're an American.)
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To: Proud_USA_Republican
What I think the dems want to do is remove the 401K system and socialize it distribute your earnings even more.

This is called, "share the wealth" so that others can benefit. I sure am glad that my taxes won't be raised under Obama (sar)

75 posted on 10/16/2008 9:15:34 PM PDT by mlocher (USA is a sovereign nation)
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To: the lone wolf
This could make a devastating commercial for McCain.

He can list 3 ways that obama will raise taxes, state how they are going on an orgy of spending and then start in with the "rats think it's won already....they are so confident they already are planning on how to raise the taxes on your 401K to pay for the spending orgy."

76 posted on 10/16/2008 9:17:06 PM PDT by TheErnFormerlyKnownAsBig (There once was a dream called, "Hippy Beat Down." The mere whisper of if caused cops to cry.")
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To: Joya

Too sadly true.


77 posted on 10/16/2008 9:17:52 PM PDT by Quix (POL LDRS GLOBALIST QUOTES: #76 http://www.freerepublic.com/focus/news/2031425/posts?page=77#77)
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To: Keyes2000mt

“A plan by Teresa Ghilarducci, professor of economic-policy analysis at The New School for Social Research in New York, contains elements that are being considered.”

Hey, professor, do you also recommend that the New York state retirement funds be put into your scheme? And what about any teacher retirement fund you might be part of if you are not a state employee at New School? All retirement funds invest to earn a return and increase the size of the fund, and those funds don’t pay taxes on any earnings.


78 posted on 10/16/2008 9:19:22 PM PDT by Will88
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To: Sacajaweau
My investment is now 1/2 of what it was. I'm devastated.

I'm not trying to sound like a prick here, but what were you "invested" in that would lose half of its value in a matter of weeks? And, the bigger question: why were you holding such assets when you needed to draw on them for operating expenses (such as your living expenses)?

I wish folks would try to plan ahead. Neither stocks, bonds, nor other securities (nor real estate!) are guaranteed to perpetually rise in value forever (or even hold their value). If you need to withdraw funds and must absolutely have that money there (or else), then for gosh sakes, put it in something that's FDIC-insured or lower-risk (U.S. obligations, for example) than shares of stock.

Too many folks took on far more risk than they could reasonably handle (while chasing higher rates of return) and now are unhappy that their assets declined in value.

79 posted on 10/16/2008 9:21:19 PM PDT by rabscuttle385 (Baldwin/Castle '08 - Gilmore for Senator from Virginia '08)
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To: Dilbert San Diego

Indeed - that is the point. Tax the 401ks out of existance and replace it with another SS with the same result. More poverty, less independence, less freedom.


80 posted on 10/16/2008 9:22:21 PM PDT by Republican Wildcat
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