Teresa Ghilarducci: The 401(k) Retirement System Has Failed (universal supplement needed - GRA's)

US News ^ | 1/30/09 | Emily Brandon

[Libloather]

Teresa Ghilarducci: The 401(k) Retirement System Has Failed
January 30, 2009 03:51 PM ET | Emily Brandon

**SNIP**

Under Ghilarducci's plan, outlined in her book When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them, all workers who don't have a traditional pension would be required to contribute 2.5 percent of their income to a government account with a 2.5 percent employer match. A 3 percent return above inflation would be guaranteed by the government. U.S. News asked Ghilarducci about her controversial retirement plans. Excerpts:

**SNIP**

How will GRAs fix the retirement system?

After 30 years of experience with voluntary participation in the 401(k) system, in my opinion, it has failed. The only retirement system that all people have is Social Security and Social Security isn’t enough. We need a universal supplement to Social security so that everyone can retire. Personal savings and employer pensions were supposed to fill in that role. I expect that the government will spend a considerable about of time figuring out a way to have a supplement to Social Security. It might not be my plan, which is mandatory and pays for the subsidy by scaling back the 401(k) system. I see a more gradual introduction of a GRA.

Is a 3 percent interest rate above inflation enough to get people to a secure retirement?

Barely. It is the minimum that the government can guarantee and itself not run the risk of not being able to pay it. If you save 5 percent of your earnings, it is enough to get middle-income workers 70 percent of their preretirement earnings in retirement. Without that supplemental guarantee, they are getting about 40 percent from the Social Security system.

[Libloather]

Who is Teresa Ghilarducci?
Monday, October 27, 2008

Although unknown to most Americans, Teresa Ghilarducci is the intellectual godmother for the Democrats' plans to radically change how Americans save for retirement. Ms. Ghilarducci, an economist at The New School for Social Research, called for the abolition of the tax breaks given to employers for 401k plans and instead proposed the mandatory enrollment of American employees in Government Retirement Accounts (GRA's) that are funded by a 5% mandatory payroll deduction in her book, When I'm 64: The Plot Against Pensions and the Plan to Save Them, published last year.

Ms. Ghilarducci outlined her proposals in a briefing paper nearly a year ago:
"The plan calls for all workers not enrolled in an equivalent or better defined-benefit pension to enroll in a GRA, a plan that borrows the best features of defined-benefit and defined-contribution plans, including guaranteed retirement benefits that last a lifetime, low administrative costs, and steady contributions. With GRAs, workers will accumulate savings in investment funds that earn a rate of return guaranteed by the federal government. These funds will be converted to life annuities upon retirement. Along with Social Security benefits, these will replace approximately 70% of pre-retirement earnings for the typical retiree.

Guaranteed Retirement Accounts eliminate the regulatory and tax law favoritism that not only gives 401(k)-type plans wide discretion and little scrutiny, but does so at the expense of the defined-benefit system.....

Guaranteed Retirement Accounts are like universal 401(k) plans except that the government, as befits a large and enduring institution, will invest and manage the pooled savings.

Contributions equal to 5% of earnings are deducted along with payroll taxes and credited to individual accounts administered by the Social Security Administration. The cost of contributions is split equally between employer and employee. Mandatory contributions are deducted only on earnings up to the Social Security earnings cap....

The pooled funds are conservatively invested in financial markets. However, participants earn a fixed 3% rate of return adjusted for inflation, guaranteed by the federal government.....

Participants who die before retiring can bequeath half their account balances to heirs; those who die after retiring can bequeath half their final account balance minus benefits received... "
Briefing Paper on Proposed New Government Retirement System

The rest of her plan is more of the same as the esteemed professor calls tax breaks for 401k plans a wasteful expense, claiming they cost the government $80 billion a year in tax revenue. She considers $80 billion in a $2 TRILLION budget "extravagant" while ignoring the fact these plans ARE taxed upon withdrawal of funds.

One benefit of 401k plans she seeks to change is ownership of the retirement funds. Currently 401k funds are the property of the employee (after becoming fully vested). If he dies, his heirs receive ALL of his money saved for retirement, minus any taxes. Under Ms. Ghilarducci's plan, surviving family members only get HALF of what remains in the account with the rest going back to the government. Consider this example: an American works for 40 years, builds up a nest egg in his GRA of $100,000 and suddenly dies from a heart attack. His wife will only receive $50,000 as the government will seize the money he earned and contributed to his retirement under this plan while the detached ivory-tower thinking of Ghilarducci and government-first philosophy of the Democrats consider such thievery to be "fair".

Unfortunately, Ms. Ghilarducci ignores the the effect her plan will have on financial markets when such a massive amount of 401k funds are transferred to the federal government. The current crisis in our markets will seem mild as they collapse from such a withdrawal of capital. Instead of addressing this very serious concern, she blithely says any injury caused to the worker can be prevented with a tax credit and says the government "conservatively invest" the money contributed to GRA's. One can only imagine the mischief this will create as it gives government further control over the markets and private businesses.

Democrats will seize upon this opportunity to impose conditions on funds receiving government investments as it does for corporations doing business with the federal government: Labor conditions. Environmental regulations. In what countries and types of business does a fund invest its money? Preferred investments and projects by favored political pals (Teamsters pension fund ring a bell?) will be a tempting target. Diversity guidelines. The list goes on as GRA's will inject the government into the economy in ways unimaginable only a few years ago.

Such a scenario is not far-fetched as House Democrats are currently discussing enacting legislation doing exactly what this liberal economist proposes: forcing the involuntary transfer of 401k retirement funds into government coffers. Investment news reported they recently held a hearing to examine "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" Earlier Post on Democrats Seizing 401k Plans

Mr. Miller had his own comments for the 401k tax breaks: "“We’ve invested $80 billion into subsidizing this activity,” he said, referring to tax breaks allowed for 401(k) contributions and savings..." Another Kingfish Post on Dem's Seizing 401k Plans.

The playbook is familiar: Democrats will use the worn out mantra about stopping tax breaks for the rich, protecting the little man on the street, etc., then fast-track legislation effectively abolishing private retirement accounts, moving most private retirement funds into the government cookie jar. The victims will receive no right to their money but instead an IOU from the government for an annuity as the government does the same for Social Security and FDIC. Meanwhile, liberals will celebrate, proclaiming they succeeded in protecting the middle class when in reality they reached their goal of enslaving everyone.

This is their idea of change.

Note: Listened to Mark Levin tonight who oddly enough, interviewed Dr. Ghilarducci. She said she wanted to "nationalize" 401k plans. No spin, no out of context, she said that was exactly what she wanted to do.

http://kingfish1935.blogspot.com/2008/10/who-is-teresa-ghilarducci.html

[cherry]

she is excluding the biggest tax hog of all......govt pensions......

how sweet for the communists...protect the govt workers and make we mere serfs pay again and again and again......

this is like Russia 40 yrs ago....the communists and the govt workers enjoyed the rich life and got the perks....the rest, the bread lines....

[Tolerance Sucks Rocks]

Can’t somebody tie this woman up in a basement somewhere and not untie her until she stops with the plans to meddle with our 401(k)’s? The retirement system did not fail us. The Community Reinvestment Act, along with the mortgage securitization scheme, ultimately caused the economic doldrums that have gobbled our retirement accounts.

[DB]

I got an idea...

GET THE HELL OUT OF MY LIFE!

[MissDairyGoodnessVT]

she’s been waiting in the wings for her national debut for her Lord and Master & he’s kept under wraps ‘til now.
i’ve been following her prior to Obambi’s nomination.
she also seems to think she’s got the prize in crackerjack box with her outlandish ideas.
She’s wacked

[NTHockey]

>>GET THE HELL OUT OF MY LIFE!<<

Amen to that. I seem to remember George W. Bush proposing GRA’s and being hooted into oblivion by the RATs. Will PUBs do the same with this grand theft larceny. If the RATs go through with this plan, they had better have armed guards and plenty of provisions.

[Tolerance Sucks Rocks]

I think she’s eaten the prize in the crackerjack box, and the chemicals in the plastic have corrupted her brain.

[Tolerance Sucks Rocks]

PING!

[abb]

The good news is that few will likely read what she has to say, given that USN&WR is just about finished.

[MissDairyGoodnessVT]

i’m telling you this woman is out of line and totally wacked she must have swalloed the toy maze and it went to her brain.
You know, some people have the weirdest ideas and they think it’s cool because they believe they “own” the idea,ergo I’ve a great idea ,my thought only therefore I own it , etc.......
This is beyond intellectualism, too. It’s somewhere far off in WACKO LAND

It Ain’t Cool

[SkyPilot]

So, the "solution" is to replace one Ponzi scheme (IRAs) with another one?

Good thing we all have Social Security! < sarcasm >

[conservatism_IS_compassion]

The pooled funds are conservatively invested in financial markets. However, participants earn a fixed 3% rate of return adjusted for inflation, guaranteed by the federal government.....

The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

The Wealth of Nations, Book IV, Chapter II

Unfortunately this does not belong in the subjective mood; it is a fact in being in a little program you may have heard of called "Social Security." The "payroll tax" is "invested in safe government bonds" to pay for your Social Security. The catch is that although the combined employee and employer "contributions" amount to 15% of your income Social Security, not only does not provide a comfortable retirement income by itself, and not only does not provide capital to hand down to future generations as a lifetime of savings at that rate logically should, the Social Security Trust Fund actually puts future generations on the hook to redeem those "safe government bonds."

Christopher Dodd and Barney Frank aren't content with having looted the banking system, they have to go after 401(k)s now.

[iopscusa]

Yep the Wacko folks will float a lot of outrageous leftist ideas with the intent to slide other equally bad ideas under the cover of ‘We must act together’ because this xyz crisis is unique and we must act immediately or else. It worked for Hangem Paulson.

[SkyPilot]

she is excluding the biggest tax hog of all......govt pensions......

Nonsense. Not by a longshot.

They don't even register compared to the real 'tax hogs' in the budget - Medicade, Medicare, Interest on the Debt (which is not going to be much higher than shown here) and Social Security.

Defense Spending is Constitutionally mandated (unlike that other garbage), and I have no problem with it. Moreover, our percentage of GDP spent on defense is a joke compared to past years.

Government pensions, if shown as stand alone on a pie chart, could not even be discernible.

I am not saying I don't think they are too generous, nor am I saying I love Government (I do not). But, we should deal in facts here.

[SkyPilot]

Correction:

which is not going to be much higher than shown here

Should read that the debt IS going to be much higher than shown here. I predict the debt will double (perhaps even triple) to about 15% or 16% - given our recent "bailouts" and Obama's impending Stalinist give away budget.

[MissDairyGoodnessVT]

exactly and if you look up real close - that slice of THEIR pie is still on table awaiting.
I read somewhere a commentary about how BHO thinks & i’m paraphrasing..... “he doesn’t think left nor right, he thinks UP. Are you aware of UPthinkers? well this 401 wacko is one of them. They can’t find a rationale for either left or right and then decide to declare “something new” “something original” and all the time still demanding that THEY the inventor/creator of this idea is second none to God and the MORE wacked out sounding it is it becomes more “original” -— why? ‘cause they made up this sh$$

oy vey!

[wastoute]

Anybody who didn't see this coming is blind. I paid the tax and got out and invested in something Zero can't get his hands on. Only a fool is leaving money where the libtards can get it. Μολὼν λάβε

[NavVet]

If they ever try this, they will have to move fast or pass legislation in the dead of night that makes it illegal to withdraw money from 401K’s and IRA’s, otherwise, I’ll just pull all mine out, take the penalty and reinvest.

[SECURE AMERICA]

A 3 percent return above inflation would be guaranteed by the government.

And EXACTLY how does the Government that is already 12 TRILLION dollars in debt and shortly to jump that to 13-14 TRILLION with the so-called Recovery/Stimulus Plan going to guarantee anything? They already know they are not going to be able to pay the already promised social security in a few years down the road?
This people are simply insame. The just open their mouths and spout this socialistic nonsense. But the scary part is that they are true believers........

[napscoordinator]

Why does everyone complain about government workers? Doesn’t everyone have the opportunity to work for the government if they chose to? I am in the military and see many civilians work very hard for the government. This bad reputation they get must be from something they did in the past.