Congress mulls major 401(k) changes

Investment News ^ | 08 oct 08 | Sara Hansard

[rellimpank]

A wide range of sweeping changes to the 401(k) system were proposed Tuesday at a hearing on how the market crisis has devastated retirement savings plans.

Chief among them was eliminating $80 billion in tax savings for higher-income people enrolled in 401(k) retirement savings plans.

This was suggested by the chairman of the House Committee on Education and Labor.

“With respect to the 401(k), it appears to be a plan that is not really well-devised for the changes in the market,” Rep. George Miller, D-Calif., said.

[Tijeras_Slim]

it’s insane and unwise.

Sounds perfect for the congress.

[savedbygrace]

OK, now I remember it. Thanks.

[rabscuttle385]

USSC said citizens have no vested interest in the tax code, and thus ex post facto changes to tax law are allowed.

What the hell. When did the SCOTUS say that?

[cajungirl]

thanks for posting!

[patton]

Early nineties, as I recall.

[griffin]

ping..

[rabscuttle385]

It seems as though these dummies are trying to kill the financial system.

The U.S. Government already trashed the education system, screwed up the immigration system, and distorted the labor markets. Now, it's trashing the financial system.

The idiots in Congress are hell bent on destroying the American system of human and financial capital in order to induce a transition to Communism.

Congress has reached the ultimate in incompetence and dishonesty.

Sometimes, incompetence and dishonesty are indistinguishable from outright malice.

[rabscuttle385]

Early nineties, as I recall.

Dang.

Well then, it appears that the U.S. is already headed into the abyss.

[laxcoach]

“The way the government now encourages 401(k) plans is to spend $80 billion in tax breaks,” which goes to the highest-income earners, Ms. Ghilarducci said.

I noticed this in the VP debate the other day. When he was asked what his admin would have to give up in their plans due to the economic crisis, he said something like we will have to give up the spending associated with some of the tax cuts we proposed and we cannot afford to spend money on tax cuts.

I was yelling at the screen. When did it become acceptable to call NOT taxing a SPENDING plan? It's like all the money that flows through my hands is really theirs. They spend money by letting me keep it. Amazing.

It would be great if this could be a 30s ad. I'm not sure how to get the idea across.

[Gorzaloon]

What is more fearsome than a population who has nothing left to lose?

[cajungirl]

EVen more interesting,,if one wants an annuity, one can purchase it from any financial institution. Why is the govt thinking about this other than to get its paws on our hard earned savings? It wants to put financial instituitions out of business.

This is horrifying. I told my kids that my plan was to leave the principal of our iras and 401’s as intact as possible and they could inherit and roll over into their iras. I will be this will be impossible.

Plus if both members of a couple have iras and 401’s, you can leave yours to your spouse to roll over into theirs, tax free, until they take it out.

With a purchased annuity from the govt, this would not be so in my opinion.

Plus it wouldn’t take long for the govt to decide that even tho one put several millioninto their annuity that in “fairness”, the income from their annuity would be less.

Sickening,all of it. Sickening.

[thulldud]

Sometimes, incompetence and dishonesty are indistinguishable from outright malice.

Some people want to waste time trying to decide what is the basis of these subversive government actions. Is it stupidity or malice? But my question is: Who can say it's not both?

[castlebrew]

'10 Million Pissed Off Men March'

I'm thinking more like '50 Million Round March'...

[polymuser]

When did it become acceptable to call NOT taxing a SPENDING plan?

Same time that a reduced increase became a cut.

[Attention Surplus Disorder]

How much time and effort on the part on concerned and "activist" Americans {and by that I just mean folks who WILL write/FAX/call] do you think goes into writing, calling, FAXing, marching your POS representatives about this kind of outright theft? What's the hit to GDP?

And does everyone here understand what went on with yesterdays' Tsy auction? The Tsy had to discount a $10 billion auction by $240 MM in order to get buyers to buy these bonds, supplying a 40 bp "tail" on the sale. This is virtually unprecedented, this is a sign of CAPITAL FLIGHT. It means that Tsys are losing their luster, but Hank is going to HAVE to sell them in order to fund his bailout. But you see, those Tsys will have to bear higher and higher yields in order to offset the risk of inflation that is implicit in "printing" so much money to fund these bailouts.

[my comment] IT COST THE TAXPAYER $240 MM EXTRA IN UNANTICIPATED DISCOUNT FOR THE TSY TO SELL THIS $10 bil DEBT. GET IT?

What's the result? How about 8-10% mortgage rates? Think that will help housing? Think again.

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[from acrossthecurve.com]

October 8th, 2008 1:16 pm The Treasury startled the markets with an announcement of new supply in the so called belly of the Treasury curve. The specter of supply which had been widely discussed just became cold hard reality.The Treasury is reopening four issues which had been previously issued as 10 year notes and which have since rolled down the curve. (If there is a potential blogger in the room, some variant of roll down the curve might be a catchy name.) They have reopened each of these issues for a cool crisp $10 billion: 4. 125 05/15/15; 4.25 08/15/15; 4 02/15/15; and the 3.5 02/15/18.

The May 2015 and the August 2015 notes are being sold today and the other two will be sold in auctions tomorrow.

Separately, the Treasury had previously announced a $6 billion reopening of the 10 year TIPS bond with an auction today.

That is $46 billion dollars of securities, most of which were not expected , crammed into a rather compact period of time. By the time this is over the belly of the Treasury curve will be in need of a financial Heimlich maneuver to dislodge the supply.

The auction of the May 2015 issue was an amazing occurrence. The Treasury gave the dealer community about an hour to underwrite $10 billion of supply. That was a big mistake. I always kid that in the underwriting process it is the job of the dealer community to shoot the taxpayer in the big toe. In this instance they amputated a leg instead.

Let me explain. There once was an active and deep market for off the run Treasury paper. An off the run is an issue offered by the Treasury at another time which has now rolled down the yield curve. Several of these issues mature in about 6 years. They were originally sold as 10 year notes. They have lost on the run status and qualify as off the run.

So the first issue in the queue was the May 2015 issue. Unfortunately, I do not have precise yield levels but will try and back into the answer. The auction average was 3.31 percent. I am told by participants that the 3.31 percent yield was 40 basis points cheap to the level which prevailed in the market prior to the auction. The point is that in order to rustle up the $10 billion of bids to clear the $10 billion auction the Treasury had to reach 40 basis points from market levels.

In bond market jargon that 40 basis points is known as a "tail" or the number of basis points from where the issue was to the level at which it stopped. Most auctions come "on the screws" which is more jargon for the notion that they come essentially where they are trading at auction times. A typical "sloppy" auction might "tail" 2 basis points. There are 5 basis point tails and I can recall 10 basis points and even 15 basis point tails. They are rare. Extremely. In all my years I can not recall a 40 basis point tail and shall proclaim this the record holder.

Now to place that in dollars and sense terms for the taxpayers of the USA I offer this. On that bond every basis point is worth a little more than $600 per million bonds. Multiply by 40 basis points and you get $24,000 per million. The auction size of $10 billion equates to 10000 million. Multiply by 24,000 and the product is $240,000,000.

In a market to market sense it cost the taxpayers that enormous sum to underwrite the auction today.

There are three more of these coming in rapid succession. Each will be priced at the new expensive for the taxpayer levels.

I would say that the Treasury paid too much money to rectify the delivery problems in the street.

I have written too much so this will be brief.

As I mentioned earlier in this lengthy screed, the Treasury is selling $6billion reopened 10 year TIPS today. I mentioned yesterday that the breakeven spread had moved to 125 basis points. (One reader took umbrage at that analysis with some valid points but so be it.) That spread had collapsed prior to the auction to about 100 basis points which means that taxpayers are supplementing bonus pools on that issue also.

[TexasRepublic]

“That’s when I start buying ordnance. In bulk.”

I’ve invested in precious metals - 900 lbs of lead, wheel weights and tin.

[Wolfie]

I’ve been saying it for years now: They’re coming for your 401k’s.

[Huck]

“The way the government now encourages 401(k) plans is to spend $80 billion in tax breaks,” which goes to the highest-income earners, Ms. Ghilarducci said.

We have become a socialist gutter. The only reason I invested in 401K in the first place was to get the company matching funds. I'll leave it there for now, and watch closely.

[Huck]

You think you got it bad. I don’t even own a gun. I keep meaning to fix that, but NJ laws make me think it’ll be a big hassle, and I’ll have to take lessons cuz I’ve never owned a gun. But for a long time I’ve wanted to at least get a home defense shotgun and get lessons for me and the missus. Maybe we can buy ourselves firearms for Christmas. I’m truly starting to think it’s past time to do so.

[PeterPrinciple]

Right now, there’s a high income test for 401Ks: that is, if your company doesn’t have many lower wage/salary people in the 401K, then the higher income people cannot contribute the full amount. This is to encourage companies to set up matching. Now, if we don’t let high income people (aka. the management) put money into 401Ks, that’ll kill the entire concept. If this goes through, no more 401Ks.

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They already quietly killed the medical savings account this past summer. Requiring more paperwork and reporting that will make it not worthwhile for the custodians of MSA’s.