RUSH: They're not hiding their plans, folks. It's scary.
Biden: CEO Pensions "Go First" (And Your 401(k) Will Go Next)
Posted on 10/24/2008 2:04:09 PM PDT by RetiredArmy
House Democrats Contemplate Abolishing 401(k) Tax Breaks
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-California, and Rep. Jim McDermott, D-HAMAS (Washington), 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 Miller’s Education and Labor Committee on her proposal.
At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months.
Under Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.
The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.
“I want to stop the federal subsidy of 401(k)s,” Ghilarducci said in an interview. “401(k)s can continue to exist, but they won’t have the benefit of the subsidy of the tax break.”
Under the current 401(k) system, investors are charged relatively high retail fees, Ghilarducci said.
“I want to spend our nation’s dollar for retirement security better. Everybody would now be covered” if the plan were adopted, Ghilarducci said.
She has been in contact with Miller and McDermott about her plan, and they are interested in pursuing it, she said.
“This [plan] certainly is intriguing,” said Mike DeCesare, press secretary for McDermott.
“That is part of the discussion,” he said.
While Miller stopped short of calling for Ghilarducci’s plan at the hearing last week, he was clearly against continuing tax breaks as they currently exist.
Savings rate
“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, New York. “A lot of people contribute to their 401(k)s because of the match of the employer,” he said. 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,” Belluardo said.
“This is a battle between liberalism and conservatism,” said Christopher Van Slyke, a partner in the La Jolla, California, advisory firm Trovena, 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 America 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 advisors to provide advice for 401(k) plans was also addressed at the hearing. Rep. Robert Andrews, D-New Jersey, was critical of Department of Labor proposals made in August that would allow advisors to give individual advice if the advice was generated using a computer model.
Andrews characterized the proposals as “loopholes” and said that investment advice should not be given by advisors who have a direct interest in the sale of financial products.
The Pension Protection Act of 2006 contains provisions making it easier for investment advisors to give individualized counseling to 401(k) holders.
“In retrospect that doesn’t seem like such a good idea to me,” 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.
On Thursday, October 9, the Department of Labor hastily scheduled a public hearing on the issue in Washington for Tuesday, October 21.
The agency does not frequently hold public hearings on its proposals.
Filed by Sara Hansard of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
I worry about whether the same may be true of the stock markets. As long as more people are trying to put money in than are trying to take it out, stock prices will go up, but if prices exceed real value, investors' real dollars are going to be turned into imaginary wealth that will evaporate when people try to redeem it.
3%. That sucks. Who is to say that will be knocked down to nothing someday? Joe Biden probably thinks it would be more patriotic if we just gave all of our possessions to Obama and worked for him the rest of our lives.
Sure there was. His proposal continued the existing “mandatory” taxation system.
I don’t think anybody’s saying GWB’s plan was perfect from the get go. Just a step in the right direction, rather than the disaster that the ‘Rats are coming up with.
This is government grabbing Private property. Those are YOUR dollars invested in the market. Not the government's!
There’s a lot of baby boomers on Facebook. I’m going to post this article there...
Deleveraging is causing the stock market to go down—it has a way to go on its own coupled with a major recession. If this passed, we’d see the Dow around 1000-2000 within a week or two of passing (I’d imagine they’d halt trading a couple of times is the only reason it would take that long).
And so it begins...
I posted this the same article October 22nd under Breaking below:
http://www.freerepublic.com/focus/f-news/2112720/posts
Please someone with influence, please bring this to Average Voter Joe's attention! This Dem Idiocy not only will negatively impact the individual 401K holder but the stock market in general.
--Eric Cartman, South Park, CO.
That made me laugh!... although this topic of confiscating 401k's is about the most outrageous scheme I've heard of... however, I'm not surprised. I would even not be surprised if the idiots in Congress capped off an idiot piece of legislation like this idea with a little clause like "if you complain, you go off to a reeducation camp". Of course they would gussy it up by calling it something like Patriotic Awakening Camp. It would be analogous to the way Nazi's stripped their victims of their possessions, even their gold fillings.
Well...they just did the same in Argentina....confiscated the similar 401k plans there.,....stock market promptly tanked.
This isn’t going to happen. This is ONE proposal. That’s it.
That is a great idea. This Dem idiocy needs to get the attention of the Average Joe Voter! Thanks for getting the word out.
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