Posted on 11/03/2008 3:44:16 PM PST by Im4realamerica
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-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.
Workforce Management’s online news feed is now available via Twitter.
If only they were that stupid.
the New School for Social Research
I wonder if this is an 0bama-Ayers funded type school. Sounds like it.
That gets my blood boiling.
they already said something about pulling ten thousand out tax free if Emperor Barry got in to encourage spending and economic growth. if he gets in, I will take it out and pay off debt and put rest in cds or an annuity, screw them and also look for away to go abroad with the money.
Everyone knows that only selfish people contributed to 401(k)s anyway. /s
If this happens you can expect the Dow to drop to around 2000.
This would kill the stock market like nothing else.
Take all the capital out of the Economy and give it to government.
This is a take over, have no doubt about it.
It’s a Marxist school.
It got my blood boiling too, but since this same article has been posted on Oct 22nd, 24th, 25th, 27th and 30th, all of my blood has evaporated by now. Note to OP: search box is your friend. Welcome to FR.
OH, yes, the “New School” has been a left-wing cesspool for decades. Originally founded by/for academic refugees from Nazi Germany....... amazing how little many of them appreciated the country that gave them freedom and opportunity b/c rather than study and promote FREEDOM they quickly turned back to their favorite leftist causes......the NSSR has been an academic breeder of activists and wannabe revolutionaries ever since.
It also has quite a nice cluster of Clintonistas on their board, as in Maggie Williams (Hillary stooge), Norman Hsu (is he in prison now??), etc.
Idiots.
The left-wing President in Argentina recently announced a govt. takeover of private pension funds in that country.
It’s a popular idea for leftists — let’s just take over everything.... b/c everyone knows your money is better off in the grubby hands of socialist bureaucrats!!
Sure Congress, go ahead and take my 401K, I’ll take your retirement plan in trade. Share the wealth, you know. /sarc
Yup. I just wanted to post so I can put Obamalamadingdong in my tagline. lol
Good strategy and I’ll second it. The only problem is there’s nowhere left to go in the world. Malachi Martin told us all about this in the late 80’s - early 90’s.
You haven’t started a 401k. How about IRA or Roth IRAs?
I haven’t heard the commies talking about them yet, but they are very similiar to 401k’s..
FWIW: If the rules don’t change (Big if with the commies coming) a Roth IRA is a good deal.
I’ve been putting money in a 401K for as long as I remember. I had a good chunk of change in there until a month ago. And I plan on leaving it there 10-15 years more.
I can see them changing future 401K rules. If they make us take money out that’s been put in there already, that’d totally suck. Sell at the bottom (a new bottom after the market tanks, DOW 2000), pay extra high taxes (current income + the deferred) and a good chunk of my future gone.
This will provide a way for the government to borrow money (from all the workers) and never have to pay interest exceeding 3.00%/year (0.25%/month).
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