Three senior members of the Senate have written to the Labor Department expressing opposition to its proposed investment advice regulation and class exemption for advice providers.
Sens. Jeff Bingaman (D-N.M.), Charles Grassley (R-Iowa) and Edward Kennedy (D-Mass.) expressed their opposition in a letter late last month. Opposition in the Senate increases the chances that Congress next year might pass new laws on 401(k) advice, overriding the much fought over advice provisions in the Pension Protection Act.
In the House, Education and Labor Committee Chairman George Miller (D-Calif.) has asked the department to withdraw its proposals.
In 2006, the PPA included compromise language that would allow providers of investments to plans to provide computer-generated advice to participants as well as advice from advisors, provided fees were kept level no matter what investments the workers went into.
"It is therefore surprising that the department has seemingly ignored much of this thoughtful debate and focused more on ways to allow investment advisers with conflicts of interest to have access to workers' retirement savings," the three senators said in their letter.
Wednesday, November 26, 2008
Tuesday, November 25, 2008
Save Your 401(K) Before the Feds Replace it with the GRA
Should 401(k) plans be subject to drastic rules changes that make them unrecognizable or virtually nonexistent?
Teresa Ghilarducci of the New School for Social Research has proposed a plan to let workers trade their current 401(k) plans in for a Guaranteed Retirement Account (GRA):
• This type of plan would pay a monthly amount at retirement, similar to an inflation-indexed annuity, at a guaranteed 3 percent real rate of return.
• Every worker would continue to contribute a mandatory five percent of his earnings into a GRA (the employer would contribute half), with the government depositing $600 a year, inflation-indexed, into the account of every worker.
Ghilarducci notes that the plan has many advantages:
• For those who are worried about fairness, the GRA plan, would be fair.
• Since the current tax-deferred set-up of 401(k) plans benefits higher-income workers (of course they do, since they pay most of the taxes), the GRA would eliminate the 401(k) tax subsidy to the "rich" in place of the $600 tax credit given to every worker.
• Another advantage, according to Ghilarducci, is that the accounts are pre-funded since workers are saving their own money.
The National Center for Policy Analysis has long supported allowing workers to invest a portion of their payroll taxes into personal accounts and allowing them to select from a limited number of investment choices.
But, unlike some mandatory savings plans, GRAs are not personal, per se, as they do not allow individuals to pick from a limited array of funds like the federal Thrift Savings Plan (TSP) does. The money would instead be pooled and invested by the government as it sees fit, explains Pamela Villarreal, a policy analyst with the NCPA.
Moreover, a GRA is no less immune to problems than a 401(k) plan, explains Villarreal:
• Although a guaranteed 3 percent real rate of return sounds good on the surface, in the fine print the government would have the right to reduce the guaranteed rate of return during economic down times and allow workers to access their funds during those times.
• Even though the fund would be managed by an independent body (similar to the TSP), it could still be subject to political manipulation; Congress has numerous times attempted to require the TSP to invest in various funds of dubious value.
Teresa Ghilarducci of the New School for Social Research has proposed a plan to let workers trade their current 401(k) plans in for a Guaranteed Retirement Account (GRA):
• This type of plan would pay a monthly amount at retirement, similar to an inflation-indexed annuity, at a guaranteed 3 percent real rate of return.
• Every worker would continue to contribute a mandatory five percent of his earnings into a GRA (the employer would contribute half), with the government depositing $600 a year, inflation-indexed, into the account of every worker.
Ghilarducci notes that the plan has many advantages:
• For those who are worried about fairness, the GRA plan, would be fair.
• Since the current tax-deferred set-up of 401(k) plans benefits higher-income workers (of course they do, since they pay most of the taxes), the GRA would eliminate the 401(k) tax subsidy to the "rich" in place of the $600 tax credit given to every worker.
• Another advantage, according to Ghilarducci, is that the accounts are pre-funded since workers are saving their own money.
The National Center for Policy Analysis has long supported allowing workers to invest a portion of their payroll taxes into personal accounts and allowing them to select from a limited number of investment choices.
But, unlike some mandatory savings plans, GRAs are not personal, per se, as they do not allow individuals to pick from a limited array of funds like the federal Thrift Savings Plan (TSP) does. The money would instead be pooled and invested by the government as it sees fit, explains Pamela Villarreal, a policy analyst with the NCPA.
Moreover, a GRA is no less immune to problems than a 401(k) plan, explains Villarreal:
• Although a guaranteed 3 percent real rate of return sounds good on the surface, in the fine print the government would have the right to reduce the guaranteed rate of return during economic down times and allow workers to access their funds during those times.
• Even though the fund would be managed by an independent body (similar to the TSP), it could still be subject to political manipulation; Congress has numerous times attempted to require the TSP to invest in various funds of dubious value.
Monday, November 24, 2008
House Democrats Contemplate Abolishing 401(k) Tax Breaks
With Dems having majority in the house, senate, and with the Messiah at the helm, this is what we have to look forward to. Unbelievable! Since social security has been such a "great success", I’m sure this will work out well.
and to think that these types of schemes are just the beginning. Obama, Pelosi and Reid are gunning for a legislative bonanza.
It really scares me when people advocating these things use possessive nouns and phrasing that clearly indicate their belief that people don’t own their earnings, but that the government does as guardian of collective wealth.
Can’t wait for the Democrats to have control of everything and have a veto-proof majority in the Senate.
I cant wait for everyone who votes for Obama to cry once all their taxes go up
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
Well I see how they plan on paying for SSI’s ious.
Force everyone to buy govt bonds instead of investing in the stockmarket.
well we knew this was coming. Poor people dont have 401ks so we all need to be put on equal footing
it’s a damn shame. i dont have an 401k since the university doesn’t match — i have CalPERS, but i have a Roth as well as a 403b
So it was Joe Biden who said just last week that evil CEOs would be the first to see their pensions go. Are you ready for the full scale attack on privately held pensions and 401K plans once Obama and Biden are in the White House?
and to think that these types of schemes are just the beginning. Obama, Pelosi and Reid are gunning for a legislative bonanza.
It really scares me when people advocating these things use possessive nouns and phrasing that clearly indicate their belief that people don’t own their earnings, but that the government does as guardian of collective wealth.
Can’t wait for the Democrats to have control of everything and have a veto-proof majority in the Senate.
I cant wait for everyone who votes for Obama to cry once all their taxes go up
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
Well I see how they plan on paying for SSI’s ious.
Force everyone to buy govt bonds instead of investing in the stockmarket.
well we knew this was coming. Poor people dont have 401ks so we all need to be put on equal footing
it’s a damn shame. i dont have an 401k since the university doesn’t match — i have CalPERS, but i have a Roth as well as a 403b
So it was Joe Biden who said just last week that evil CEOs would be the first to see their pensions go. Are you ready for the full scale attack on privately held pensions and 401K plans once Obama and Biden are in the White House?
Study Shows Workers Sticking with Retirement Plans
U.S. employees seem to be resisting the temptation to save less in their retirement accounts, a Hewitt Associates survey shows.
Savings rates have barely dropped, from 8 percent in 2007 to 7.8 percent in 2008, although there is a predictably aggressive shifting of assets from equities to more other investments. What's more, just 4 percent of employees have terminated their 401(k) plan contributions altogether this year, according to the analysis by Hewitt, a global human resources consulting company.
Savings rates have barely dropped, from 8 percent in 2007 to 7.8 percent in 2008, although there is a predictably aggressive shifting of assets from equities to more other investments. What's more, just 4 percent of employees have terminated their 401(k) plan contributions altogether this year, according to the analysis by Hewitt, a global human resources consulting company.
A Capitalist's Social Security, 401(K), And Retirement Plan Reform Program
What if there was an easy way to implement a whole new approach to retirement funding, pension planning, and Social Security? Would the politicians be interested? Let's find out.
What if the new plan actually reduced payroll taxes, cut prices, created jobs, increased salaries, raised shareholder dividends, partially funded decreased healthcare costs, and was available to everyone?
Sound too good to be true, but it's actually doable. The reasons for the present system's failure are mostly political; the solutions are clear, practical, and non-partisan. What we want is a less expensive system for assuring that everyone is able to retire with an adequate income, higher than that provided now by Social Security.
What we need is a simple program, part mandatory and part voluntary, using experienced trustees who operate within the strictures of the prudent-man rule--- a risk-minimizing legal doctrine that restricts investments to those that seek reasonable income and preservation of invested capital--- SIBORAP Tier One investments.
The 2007-2008 stock market correction and credit crisis laid bare the weaknesses of all self-directed retirement accounts. First of all, they are not (and never were) pension plan equivalents. They were cheap-to-provide replacements for fully funded defined benefit pension plans--- supplemental programs at best.
What if the new plan actually reduced payroll taxes, cut prices, created jobs, increased salaries, raised shareholder dividends, partially funded decreased healthcare costs, and was available to everyone?
Sound too good to be true, but it's actually doable. The reasons for the present system's failure are mostly political; the solutions are clear, practical, and non-partisan. What we want is a less expensive system for assuring that everyone is able to retire with an adequate income, higher than that provided now by Social Security.
What we need is a simple program, part mandatory and part voluntary, using experienced trustees who operate within the strictures of the prudent-man rule--- a risk-minimizing legal doctrine that restricts investments to those that seek reasonable income and preservation of invested capital--- SIBORAP Tier One investments.
The 2007-2008 stock market correction and credit crisis laid bare the weaknesses of all self-directed retirement accounts. First of all, they are not (and never were) pension plan equivalents. They were cheap-to-provide replacements for fully funded defined benefit pension plans--- supplemental programs at best.
Sunday, November 23, 2008
Should I cash out my 401(k) — or hang on?
The discussion about retirement this week over on Newsvine drew a number of variations on the same theme. What should I do with my 401(k) account now? Sell my stocks at a loss? Or hold on and hope the market comes back?
Should I wait to rebalance my 401(k), and weight it away from stocks? Should I wait for things to get back to where they were, while still putting contributions into the current plan? Or should I put everything into bonds right away? My portfolio IRA and 401(k) has lost 40 percent of its value.
Should I wait to rebalance my 401(k), and weight it away from stocks? Should I wait for things to get back to where they were, while still putting contributions into the current plan? Or should I put everything into bonds right away? My portfolio IRA and 401(k) has lost 40 percent of its value.
Saturday, November 22, 2008
For now, our 401(k)'s are safe, but for how much longer though?
$80 billion + is a little too much temptation to the democrats and not so secret marxists in government.
FactCheck: Nobody's after your 401(k)
A lot of double talk through rose colored glasses.......but I'll let you decide. Just remember, government programs start out as one thing. Then evolve into something bigger and more expensive and into something that they were never meant to be.
From FactCheck.org
Q: Are congressional Democrats talking about confiscating IRA and 401(k) investment accounts?
My mother has recently brought up a rumor that Nancy Pelosi and Harry Reid endorse a plan for the goverment to take people's 401Ks to make up tax dollars. Is this true and where did my mother get the information? (she can't tell me).
A: No. There's no plan to seize these accounts. One House witness at a committee hearing proposed to allow some people to trade their old accounts for a new type that would be less risky.
We've had many queries about this doozy. They all lead back to a Nov. 4 report posted by the Carolina Journal, a publication of the conservative John Locke Foundation of Raleigh, N.C. Its headline proclaimed, "Dems Target Private Retirement Accounts: Democratic leaders in the U.S. House discuss confiscating 401(k)s, IRAs." The report is wrong. There's been no such discussion.
What has been discussed is changing 401(k) and Individual Retirement Accounts in the future by limiting the deductibility of donations, and offering as an alternative a $600 tax credit and a new type of account with an annual return guaranteed by the government. That's a controversial idea to be sure, but it's a far cry from proposing that the government seize retirement assets that investors have already salted away in 401(k)s or IRAs. Nobody we know of is proposing anything like that.
The Carolina Journal report claims that Democrats on the House Education and Labor Committee held hearings Oct. 7 on "proposals to confiscate workers’ personal retirement accounts." The report describes in particular the testimony of Teresa Ghilarducci, a professor at the New School for Social Research in New York City. We've reviewed Ghilarducci's written testimony and a video recording of the entire hearing, both of which are posted on the committee's official Web site and are available to anybody who cares to read or listen. Contrary to the Carolina Journal report, nobody at the hearing talked about confiscating or seizing accounts. We also contacted Ghilarducci independently and asked if she's expressed support for confiscation. She told us in an e-mail message that she hasn't:
Teresa Ghilarducci, Nov. 18: It is utterly ridiculous [to suppose] that I advocate seizing 401k assets.
Ghilarducci was one of six witnesses at the Oct. 7 hearing, convened by chairman George Miller of California, a Democrat, to examine the impact of the financial crisis and stock market meltdown on workers' retirement accounts. Ghilarducci has long proposed limiting tax deductions for money put into 401(k) and similar retirement accounts and setting up a new type of account instead. Ghilarducci touts the idea in a book published earlier this year and in an opinion article published in the New York Times on Sept. 26. A spokesman for Rep. Miller has been quoted as calling her idea "intriguing" and "part of the discussion," but so far nobody in Congress has adopted it in the form of proposed legislation.
What she proposes is strong medicine and has been sharply criticized by conservative commentators including Rush Limbaugh and the editorial page of The Wall Street Journal. She would force all workers to save 5 percent of their annual income in a new type of retirement vehicle, which she calls a Guaranteed Retirement Account. These savings could not be controlled by workers like IRAs and 401(k) assets, but would instead be deposited with the government. Workers could not touch the money until retirement, she says, and even then the savings could not be drawn out any way workers might desire, but would be converted to an annuity – a guaranteed stream of income for life.
Ghilarducci argues that these new accounts would avoid stock market risks; the government would guarantee that the savings earn a 3 percent annual return on top of inflation. The government would also pay each worker $600 a year in the form of a tax credit, which would help workers who now earn too little to take advantage of a tax deduction because they owe little or no federal income tax anyway.
At the Oct. 7 hearing, Ghilarducci further proposed that Congress address the recent stock market drop by allowing workers to trade their existing 401(k) or IRA accounts for her proposed Guaranteed Retirement Accounts. (Her words can be heard starting at 33 minutes and 23 seconds into the video of the hearing.)
Ghilarducci, Oct. 7: I propose ... that the Congress allow workers to swap out their 401k assets, perhaps at August levels, for a Guaranteed Retirement Account. Just a one-time swap, trading your 401(k) for a Guaranteed Retirement Account that will be composed of the equivalent of government bonds that pay a 3 percent real return.
Note that she used the word "allow." This proposed swap would be voluntary, the opposite of a seizure or confiscation. And many might find such a trade attractive. Note also that she said "perhaps at August levels," suggesting that Congress might replenish the value of beaten-down stocks in IRAs and 401(k) accounts before making the swap. That would be quite a generous offer; the Dow Jones Industrial Average dropped nearly 17 percent between August 1 and the day of the hearing. Far from proposing to "confiscate" accounts, she proposed to restore their value. Congress has not acted on her suggestions.
We contacted the John Locke Foundation to ask about the basis for the "confiscation" claim. We wondered if the Carolina Journal's reporter knew something about the plan that we didn't. Spokesman Jon Ham said: "[W]e, as the saying goes, 'stand by our story.' "
Ham argued that holders of 401(k) accounts and IRAs would feel "coercion" to convert those accounts into Ghilarducci's proposed GRAs. He said: "Even though transferring of a 401(k) to a GRA would be 'voluntary' under Ghilarducci’s proposal, the loss of the 401(k)s tax advantage makes it coercive, with the intent of forcing individuals to transfer their accounts to a GRA. ... Absent the loss of the tax advantage, we would not have described the Ghilarducci plan as 'confiscation.' "
But Ham's argument won't wash. Even if there were coercion to convert an IRA or 401(k) account to a GRA account, it would be a rather serious exaggeration to describe it as "confiscation." The old account owners would still own them, in a new type of account. And anyway, Ham is simply wrong to claim that there would be any coercion.
What Ghilarducci proposes is to pay for her proposed $600 tax credit by taking away the deductibility of money put into an IRA or 401(k) over $5,000 per individual, per year. (IRAs for those under age 50 would actually not be affected, since the current limit for them is $5,000 anyway.) This would certainly reduce the incentive for upper-income workers to put more than $5,000 into such accounts in future years, but it would in no way reduce the tax advantage of keeping money already in those accounts. All interest, dividends and capital gains realized inside those accounts would continue to go untaxed until the account holder withdraws the money. Ghilarducci told us:
Ghilarducci: If people put money into 401(k)s they could keep it there, and taxes would continue to be deferred until withdrawn. It is unthinkable that Congress would take a tax break away for activities already undertaken.
So much for "confiscation." We don't endorse or oppose Ghilarducci's ideas. But it's simply a fact that neither she nor anybody we're aware of is proposing a government seizure of retirement accounts.
-Brooks Jackson
Sources
McMahan, Karen. "Dems Target Private Retirement Accounts: Democratic leaders in the U.S. House discuss confiscating 401(k)s, IRAs." North Carolina Journal, 4 Nov 2008.
Hansard, Sara. "Congress mulls major 401(k) changes." Investment News, 7 Oct 2008.
Limbaugh, Rush. "Democrats Destroyed Your 401(k)." Transcript of radio broadcast, 9 Oct 2008.
"Targeting Your 401(k): Congress has an eye on the tax break for your retirement" editorial. The Wall Street Journal, 14 Oct 2008.
Ghilarducci, Teresa. "Saving Retirement in the Face of America’s Credit Crises: Short Term and Long Term Solutions." Testimony prepared for the House Committee on Education and Labor, 7 Oct 2008.
Ghilarducci, Teresa. "Save Pensions." New York Times, 26 Sept. 2008.
No Related links found
From FactCheck.org
Q: Are congressional Democrats talking about confiscating IRA and 401(k) investment accounts?
My mother has recently brought up a rumor that Nancy Pelosi and Harry Reid endorse a plan for the goverment to take people's 401Ks to make up tax dollars. Is this true and where did my mother get the information? (she can't tell me).
A: No. There's no plan to seize these accounts. One House witness at a committee hearing proposed to allow some people to trade their old accounts for a new type that would be less risky.
We've had many queries about this doozy. They all lead back to a Nov. 4 report posted by the Carolina Journal, a publication of the conservative John Locke Foundation of Raleigh, N.C. Its headline proclaimed, "Dems Target Private Retirement Accounts: Democratic leaders in the U.S. House discuss confiscating 401(k)s, IRAs." The report is wrong. There's been no such discussion.
What has been discussed is changing 401(k) and Individual Retirement Accounts in the future by limiting the deductibility of donations, and offering as an alternative a $600 tax credit and a new type of account with an annual return guaranteed by the government. That's a controversial idea to be sure, but it's a far cry from proposing that the government seize retirement assets that investors have already salted away in 401(k)s or IRAs. Nobody we know of is proposing anything like that.
The Carolina Journal report claims that Democrats on the House Education and Labor Committee held hearings Oct. 7 on "proposals to confiscate workers’ personal retirement accounts." The report describes in particular the testimony of Teresa Ghilarducci, a professor at the New School for Social Research in New York City. We've reviewed Ghilarducci's written testimony and a video recording of the entire hearing, both of which are posted on the committee's official Web site and are available to anybody who cares to read or listen. Contrary to the Carolina Journal report, nobody at the hearing talked about confiscating or seizing accounts. We also contacted Ghilarducci independently and asked if she's expressed support for confiscation. She told us in an e-mail message that she hasn't:
Teresa Ghilarducci, Nov. 18: It is utterly ridiculous [to suppose] that I advocate seizing 401k assets.
Ghilarducci was one of six witnesses at the Oct. 7 hearing, convened by chairman George Miller of California, a Democrat, to examine the impact of the financial crisis and stock market meltdown on workers' retirement accounts. Ghilarducci has long proposed limiting tax deductions for money put into 401(k) and similar retirement accounts and setting up a new type of account instead. Ghilarducci touts the idea in a book published earlier this year and in an opinion article published in the New York Times on Sept. 26. A spokesman for Rep. Miller has been quoted as calling her idea "intriguing" and "part of the discussion," but so far nobody in Congress has adopted it in the form of proposed legislation.
What she proposes is strong medicine and has been sharply criticized by conservative commentators including Rush Limbaugh and the editorial page of The Wall Street Journal. She would force all workers to save 5 percent of their annual income in a new type of retirement vehicle, which she calls a Guaranteed Retirement Account. These savings could not be controlled by workers like IRAs and 401(k) assets, but would instead be deposited with the government. Workers could not touch the money until retirement, she says, and even then the savings could not be drawn out any way workers might desire, but would be converted to an annuity – a guaranteed stream of income for life.
Ghilarducci argues that these new accounts would avoid stock market risks; the government would guarantee that the savings earn a 3 percent annual return on top of inflation. The government would also pay each worker $600 a year in the form of a tax credit, which would help workers who now earn too little to take advantage of a tax deduction because they owe little or no federal income tax anyway.
At the Oct. 7 hearing, Ghilarducci further proposed that Congress address the recent stock market drop by allowing workers to trade their existing 401(k) or IRA accounts for her proposed Guaranteed Retirement Accounts. (Her words can be heard starting at 33 minutes and 23 seconds into the video of the hearing.)
Ghilarducci, Oct. 7: I propose ... that the Congress allow workers to swap out their 401k assets, perhaps at August levels, for a Guaranteed Retirement Account. Just a one-time swap, trading your 401(k) for a Guaranteed Retirement Account that will be composed of the equivalent of government bonds that pay a 3 percent real return.
Note that she used the word "allow." This proposed swap would be voluntary, the opposite of a seizure or confiscation. And many might find such a trade attractive. Note also that she said "perhaps at August levels," suggesting that Congress might replenish the value of beaten-down stocks in IRAs and 401(k) accounts before making the swap. That would be quite a generous offer; the Dow Jones Industrial Average dropped nearly 17 percent between August 1 and the day of the hearing. Far from proposing to "confiscate" accounts, she proposed to restore their value. Congress has not acted on her suggestions.
We contacted the John Locke Foundation to ask about the basis for the "confiscation" claim. We wondered if the Carolina Journal's reporter knew something about the plan that we didn't. Spokesman Jon Ham said: "[W]e, as the saying goes, 'stand by our story.' "
Ham argued that holders of 401(k) accounts and IRAs would feel "coercion" to convert those accounts into Ghilarducci's proposed GRAs. He said: "Even though transferring of a 401(k) to a GRA would be 'voluntary' under Ghilarducci’s proposal, the loss of the 401(k)s tax advantage makes it coercive, with the intent of forcing individuals to transfer their accounts to a GRA. ... Absent the loss of the tax advantage, we would not have described the Ghilarducci plan as 'confiscation.' "
But Ham's argument won't wash. Even if there were coercion to convert an IRA or 401(k) account to a GRA account, it would be a rather serious exaggeration to describe it as "confiscation." The old account owners would still own them, in a new type of account. And anyway, Ham is simply wrong to claim that there would be any coercion.
What Ghilarducci proposes is to pay for her proposed $600 tax credit by taking away the deductibility of money put into an IRA or 401(k) over $5,000 per individual, per year. (IRAs for those under age 50 would actually not be affected, since the current limit for them is $5,000 anyway.) This would certainly reduce the incentive for upper-income workers to put more than $5,000 into such accounts in future years, but it would in no way reduce the tax advantage of keeping money already in those accounts. All interest, dividends and capital gains realized inside those accounts would continue to go untaxed until the account holder withdraws the money. Ghilarducci told us:
Ghilarducci: If people put money into 401(k)s they could keep it there, and taxes would continue to be deferred until withdrawn. It is unthinkable that Congress would take a tax break away for activities already undertaken.
So much for "confiscation." We don't endorse or oppose Ghilarducci's ideas. But it's simply a fact that neither she nor anybody we're aware of is proposing a government seizure of retirement accounts.
-Brooks Jackson
Sources
McMahan, Karen. "Dems Target Private Retirement Accounts: Democratic leaders in the U.S. House discuss confiscating 401(k)s, IRAs." North Carolina Journal, 4 Nov 2008.
Hansard, Sara. "Congress mulls major 401(k) changes." Investment News, 7 Oct 2008.
Limbaugh, Rush. "Democrats Destroyed Your 401(k)." Transcript of radio broadcast, 9 Oct 2008.
"Targeting Your 401(k): Congress has an eye on the tax break for your retirement" editorial. The Wall Street Journal, 14 Oct 2008.
Ghilarducci, Teresa. "Saving Retirement in the Face of America’s Credit Crises: Short Term and Long Term Solutions." Testimony prepared for the House Committee on Education and Labor, 7 Oct 2008.
Ghilarducci, Teresa. "Save Pensions." New York Times, 26 Sept. 2008.
No Related links found
Friday, November 21, 2008
SAVE YOUR 401 (K) BEFORE THE FEDS REPLACE IT WITH THE GRA
Should 401(k) plans be subject to drastic rules changes that make them unrecognizable or virtually nonexistent?
Teresa Ghilarducci of the New School for Social Research has proposed a plan to let workers trade their current 401(k) plans in for a Guaranteed Retirement Account (GRA):
This type of plan would pay a monthly amount at retirement, similar to an inflation-indexed annuity, at a guaranteed 3 percent real rate of return.
Every worker would continue to contribute a mandatory five percent of his earnings into a GRA (the employer would contribute half), with the government depositing $600 a year, inflation-indexed, into the account of every worker.
Ghilarducci notes that the plan has many advantages:
For those who are worried about fairness, the GRA plan, would be fair.
Since the current tax-deferred set-up of 401(k) plans benefits higher-income workers (of course they do, since they pay most of the taxes), the GRA would eliminate the 401(k) tax subsidy to the "rich" in place of the $600 tax credit given to every worker.
Another advantage, according to Ghilarducci, is that the accounts are pre-funded since workers are saving their own money.
The National Center for Policy Analysis has long supported allowing workers to invest a portion of their payroll taxes into personal accounts and allowing them to select from a limited number of investment choices. But, unlike some mandatory savings plans, GRAs are not personal, per se, as they do not allow individuals to pick from a limited array of funds like the federal Thrift Savings Plan (TSP) does. The money would instead be pooled and invested by the government as it sees fit, explains Pamela Villarreal, a policy analyst with the NCPA.
Moreover, a GRA is no less immune to problems than a 401(k) plan, explains Villarreal:
Although a guaranteed 3 percent real rate of return sounds good on the surface, in the fine print the government would have the right to reduce the guaranteed rate of return during economic down times and allow workers to access their funds during those times.
Even though the fund would be managed by an independent body (similar to the TSP), it could still be subject to political manipulation; Congress has numerous times attempted to require the TSP to invest in various funds of dubious value.
Source: Pamela Villarreal, "Save Your 401 (k) Before the Feds Replace it With the GRA," The Examiner, November 20, 2008.
Teresa Ghilarducci of the New School for Social Research has proposed a plan to let workers trade their current 401(k) plans in for a Guaranteed Retirement Account (GRA):
This type of plan would pay a monthly amount at retirement, similar to an inflation-indexed annuity, at a guaranteed 3 percent real rate of return.
Every worker would continue to contribute a mandatory five percent of his earnings into a GRA (the employer would contribute half), with the government depositing $600 a year, inflation-indexed, into the account of every worker.
Ghilarducci notes that the plan has many advantages:
For those who are worried about fairness, the GRA plan, would be fair.
Since the current tax-deferred set-up of 401(k) plans benefits higher-income workers (of course they do, since they pay most of the taxes), the GRA would eliminate the 401(k) tax subsidy to the "rich" in place of the $600 tax credit given to every worker.
Another advantage, according to Ghilarducci, is that the accounts are pre-funded since workers are saving their own money.
The National Center for Policy Analysis has long supported allowing workers to invest a portion of their payroll taxes into personal accounts and allowing them to select from a limited number of investment choices. But, unlike some mandatory savings plans, GRAs are not personal, per se, as they do not allow individuals to pick from a limited array of funds like the federal Thrift Savings Plan (TSP) does. The money would instead be pooled and invested by the government as it sees fit, explains Pamela Villarreal, a policy analyst with the NCPA.
Moreover, a GRA is no less immune to problems than a 401(k) plan, explains Villarreal:
Although a guaranteed 3 percent real rate of return sounds good on the surface, in the fine print the government would have the right to reduce the guaranteed rate of return during economic down times and allow workers to access their funds during those times.
Even though the fund would be managed by an independent body (similar to the TSP), it could still be subject to political manipulation; Congress has numerous times attempted to require the TSP to invest in various funds of dubious value.
Source: Pamela Villarreal, "Save Your 401 (k) Before the Feds Replace it With the GRA," The Examiner, November 20, 2008.
Wednesday, November 19, 2008
Who Is Targeting Your 401(k)?
A Wall Street Journal editorial published Friday suggests that congressional Democrats have plans to eliminate 401(k) tax breaks and are "entertaining dreams of state-managed retirement accounts."
Rep. George Miller, the California Democrat who chairs of the House Education and Labor Committee, shot back with a statement the same day. "The Wall Street Journal is needlessly creating fear among Americans rightly worried about their retirement security by misrepresenting my efforts to strengthen workers' retirement savings—attacks that have no basis in fact. I do not support 'abolishing' 401(k)'s, moving these plans, or changing their tax status, plain and simple," Miller said.
Miller stated that his goals for 401(k)'s are to expose excess fees, bring more young and low-wage workers into the system through automatic enrollment, promote inexpensive and diversified investment options, encourage independent and objective investment advice, and reduce vesting periods to make 401(k)'s more portable.
MSNBC says the 401(k) congressional hearings in October have reached urban-legend status and published a debunker piece about the ensuing Internet controversy.
Tell us, what 401(k) issues would you like to see Congress address?
Rep. George Miller, the California Democrat who chairs of the House Education and Labor Committee, shot back with a statement the same day. "The Wall Street Journal is needlessly creating fear among Americans rightly worried about their retirement security by misrepresenting my efforts to strengthen workers' retirement savings—attacks that have no basis in fact. I do not support 'abolishing' 401(k)'s, moving these plans, or changing their tax status, plain and simple," Miller said.
Miller stated that his goals for 401(k)'s are to expose excess fees, bring more young and low-wage workers into the system through automatic enrollment, promote inexpensive and diversified investment options, encourage independent and objective investment advice, and reduce vesting periods to make 401(k)'s more portable.
MSNBC says the 401(k) congressional hearings in October have reached urban-legend status and published a debunker piece about the ensuing Internet controversy.
Tell us, what 401(k) issues would you like to see Congress address?
401(k) appeals because savings are deductible
Economist Teresa Ghilarducci’s plan to restructure 401(k)’s shows her ignorance of investing and even greater lack of understanding of human nature.
Her scheme cloaks in obfuscation the reality that the tax deductibility of our current system will be abandoned. Once tax deductibility is taken away, there will no longer be any motivation to save in this manner.
Ghilarducci wants to help the class that saves nothing now, by ruining the whole system that serves more responsible members of society. A more compassionate way of helping the underclass save for retirement would involve mandatory public school education about investments’ many options.
But teachers unions are dead set against helping the most vulnerable become members of an ownership society. Their sole reason is that people who are invested in an ownership society are more likely to vote Republican. Ghilarducci and her ilk are committed to maintaining a class of dependent Americans.
Her scheme cloaks in obfuscation the reality that the tax deductibility of our current system will be abandoned. Once tax deductibility is taken away, there will no longer be any motivation to save in this manner.
Ghilarducci wants to help the class that saves nothing now, by ruining the whole system that serves more responsible members of society. A more compassionate way of helping the underclass save for retirement would involve mandatory public school education about investments’ many options.
But teachers unions are dead set against helping the most vulnerable become members of an ownership society. Their sole reason is that people who are invested in an ownership society are more likely to vote Republican. Ghilarducci and her ilk are committed to maintaining a class of dependent Americans.
Tuesday, November 18, 2008
OYS: Pulling out of your 401(k) might not cost what you think
With all the uncertainty in the financial world, you may be wondering what to do with your investments. Specifically your 401(k). If you're getting nervous, there are some options that won't wreck your retirement plans.
A lot of folks are sleeping on pins and needles these days because their 401(k)'s are holding their own like a cardboard box in the middle of the ocean. But if you bail out from it, won't you pay out a bunch in penalties and taxes? Not necessarily.
David Smith made a move recently with most of his retirement savings that a lot of people wish they did too.
"I decided to move it. Moved 95 percent out." he said.
David had his money in what's called a 403(b) Account which is pretty similar to a 401(k). and because he moved it into a more protected investment, he's sitting pretty right now.
A lot of folks are sleeping on pins and needles these days because their 401(k)'s are holding their own like a cardboard box in the middle of the ocean. But if you bail out from it, won't you pay out a bunch in penalties and taxes? Not necessarily.
David Smith made a move recently with most of his retirement savings that a lot of people wish they did too.
"I decided to move it. Moved 95 percent out." he said.
David had his money in what's called a 403(b) Account which is pretty similar to a 401(k). and because he moved it into a more protected investment, he's sitting pretty right now.
Will Obama Confiscate Your 401(k)?
I was speaking with a friend of mine yesterday - who is in a hurry to withdraw his 401(k) plan, even with the penalties! He was nervous that “the government” is going to hold his retirement money hostage till, well, retirement age. He was worried that in case of a dire emergency, that money will no longer be accessible.
What do you think about this?
What do you think about this?
Dems Target Private Retirement Accounts
Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers’ personal retirement accounts — including 401(k)s and IRAs — and convert them to accounts managed by the Social Security Administration.
Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.
The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for
the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers’ retirement plan
accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.
Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, in prepared remarks for the hearing on “The Impact of the Financial Crisis on Workers’ Retirement Security,”
blamed Wall Street for the financial crisis and said his committee will “strengthen and protect Americans’ 401(k)s, pensions, and other retirement plans” and the “Democratic Congress will continue to
conduct this much-needed oversight on behalf of the American people.” Currently, 401(k) plans allow Americans to invest pretax money and their employers match up to a defined percentage, which not only
increases workers’ retirement savings but also reduces their annual income tax. The balances are fully inheritable, subject to income tax, meaning workers pass on their wealth to their heirs, unlike Social
Security. Even when they leave an employer and go to one that doesn’t offer a 401(k) or pension, workers can transfer their balances to a qualified IRA.
Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.
The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for
the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers’ retirement plan
accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.
Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, in prepared remarks for the hearing on “The Impact of the Financial Crisis on Workers’ Retirement Security,”
blamed Wall Street for the financial crisis and said his committee will “strengthen and protect Americans’ 401(k)s, pensions, and other retirement plans” and the “Democratic Congress will continue to
conduct this much-needed oversight on behalf of the American people.” Currently, 401(k) plans allow Americans to invest pretax money and their employers match up to a defined percentage, which not only
increases workers’ retirement savings but also reduces their annual income tax. The balances are fully inheritable, subject to income tax, meaning workers pass on their wealth to their heirs, unlike Social
Security. Even when they leave an employer and go to one that doesn’t offer a 401(k) or pension, workers can transfer their balances to a qualified IRA.
Monday, November 17, 2008
Lawmakers consider 401(k) alternatives
Calls are mounting to overhaul 401(k) retirement plans amid a decline in investor confidence after the U.S. markets slid during the past month, experts say.
Citing the Employee Benefit Research Institute, the Los Angeles Times reported Sunday that so far this year, the average worker's 401(k) account balance has dropped between 21 percent and 27 percent, depending on the worker's age and time with his or her employer.
"The current 401(k) system has not turned out to be as secure as we want it to be," said Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee. "It has not provided the returns that we want it to. And it's not provided the level of savings that we want it to. It's kind of failing on a number of fronts."
The House committee has held two hearings on the effects of the financial crisis on retirement savings plans. At one hearing, a professor from New York's New School for Social Research called for the creation of government-backed retirement savings accounts that would offer a guaranteed, inflation-adjusted 3 percent return.
The idea has not gotten much traction because it would abolish the tax break on 401(k) savings, but the newspaper said the fact that the idea was considered is evidence that confidence has been shaken in the 401(k) system.
Citing the Employee Benefit Research Institute, the Los Angeles Times reported Sunday that so far this year, the average worker's 401(k) account balance has dropped between 21 percent and 27 percent, depending on the worker's age and time with his or her employer.
"The current 401(k) system has not turned out to be as secure as we want it to be," said Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee. "It has not provided the returns that we want it to. And it's not provided the level of savings that we want it to. It's kind of failing on a number of fronts."
The House committee has held two hearings on the effects of the financial crisis on retirement savings plans. At one hearing, a professor from New York's New School for Social Research called for the creation of government-backed retirement savings accounts that would offer a guaranteed, inflation-adjusted 3 percent return.
The idea has not gotten much traction because it would abolish the tax break on 401(k) savings, but the newspaper said the fact that the idea was considered is evidence that confidence has been shaken in the 401(k) system.
Lawmakers consider 401(k) alternatives
Calls are mounting to overhaul 401(k) retirement plans amid a decline in investor confidence after the U.S. markets slid during the past month, experts say.
Citing the Employee Benefit Research Institute, the Los Angeles Times reported Sunday that so far this year, the average worker's 401(k) account balance has dropped between 21 percent and 27 percent, depending on the worker's age and time with his or her employer.
The current 401(k) system has not turned out to be as secure as we want it to be, said Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee. It has not provided the returns that we want it to. And it's not provided the level of savings that we want it to. It's kind of failing on a number of fronts.
The House committee has held two hearings on the effects of the financial crisis on retirement savings plans. At one hearing, a professor from New York's New School for Social Research called for the creation of government-backed retirement savings accounts that would offer a guaranteed, inflation-adjusted 3 percent return.
The idea has not gotten much traction because it would abolish the tax break on 401(k) savings, but the newspaper said the fact that the idea was considered is evidence that confidence has been shaken in the 401(k) system.
Citing the Employee Benefit Research Institute, the Los Angeles Times reported Sunday that so far this year, the average worker's 401(k) account balance has dropped between 21 percent and 27 percent, depending on the worker's age and time with his or her employer.
The current 401(k) system has not turned out to be as secure as we want it to be, said Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee. It has not provided the returns that we want it to. And it's not provided the level of savings that we want it to. It's kind of failing on a number of fronts.
The House committee has held two hearings on the effects of the financial crisis on retirement savings plans. At one hearing, a professor from New York's New School for Social Research called for the creation of government-backed retirement savings accounts that would offer a guaranteed, inflation-adjusted 3 percent return.
The idea has not gotten much traction because it would abolish the tax break on 401(k) savings, but the newspaper said the fact that the idea was considered is evidence that confidence has been shaken in the 401(k) system.
Friday, November 14, 2008
Guaranteed retirement accounts
For most of the last century, American retirement income policy supported a combination of programs—Social Security and federal tax subsidies for traditional defined-benefit pensions and for voluntary personal retirement accounts—that enabled many people to stop working and to maintain their living standards in retirement, while reducing old-age poverty rates.
But the American retirement income security system is breaking down. If current trends continue, poverty rates among the elderly will increase and middle-class retirees will find that their retirement income will not pay for the lifestyle they achieved while working. This will be the first time since World War II that the standard of living of elderly Americans declines while that of prime- age workers increases.
This reversal is due to tax and regulatory policies that fail to promote retirement savings and penalize defined-benefit plans. Regulations favor, and tax subsidies increasingly go to, the wrong kinds of retirement programs. As a result, 401(k) plans and other defined-contribution plans1 that were designed to supplement, not replace, traditional pensions are growing at the expense of defined-benefit plans that provide secure supplemental income to Social Security.
Tax breaks for 401(k) plans amounted to $110 billion in 2006, most of which went to households in the top tax brackets. These tax breaks mostly cause wealthy households to shift savings to tax-favored accounts rather than increase overall savings (Chernozhukov and Hansen 2004; Engen and Gale 2000)—thus the paradox that taxpayers are giving up more and more revenue to promote retirement savings while retirement security declines.
In fact, the Urban-Brookings Tax Policy Center found that income tax expenditures for retirement plans were actually larger than personal savings in 2003, including contributions to retirement plans (Bell, Carasso, and Steuerle 2004). This occurred despite a confluence of factors that should have boosted savings growth, including a sharp increase in the amount of money people could shelter from tax in accounts that are intended for retirement savings, an older and more educated workforce, and an economy in which the wealthy, who tend to save more, have received the lion’s share of recent income increases.
This paper proposes a rescue plan for the American retirement income security system, based on a mixed system composed of Social Security, employer defined-benefit pension plans, and a new type of personal retirement savings account called a Guaranteed Retirement Account (GRA). This rescue plan will not work without a strong defined-benefit pension system and a strong Social Security system. Tax breaks for 401(k)-style plans and IRAs will be converted into flat tax credits to offset the cost of these new accounts, so the plan will improve the retirement security of most Americans without costing taxpayers more than the current system.
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. Most defined-benefit plans yield a much higher benefit than even Guaranteed Retirement Accounts, though they typically also require average contributions of over 6% of payroll for sustainability.
The Guaranteed Retirement Account plan will help reverse the slide in employer-provided defined-benefit plans. Employers who are now considering converting their defined-benefit plans to 401(k)s to save money will find that option much less attractive without tax benefits, and will therefore be more likely to retain their defined-benefit plans. Meanwhile, employers currently offering 401(k)s as a recruitment and retention tool may switch to defined-benefit plans, since particular employers cannot distinguish themselves by offering Guaranteed Retirement Accounts (as with Social Security).
The first section of this paper describes GRAs. The second and third sections provide an overview of the current system and describe how it increasingly fails to meet 10 standards of a good retirement security system. The fourth section explains how the Guaranteed Retirement Account plan would address these failures, and the fifth answers questions about the plan. The final section compares the plan to other reform ideas, such as auto 401(k) enrollment and raising the retirement age.
But the American retirement income security system is breaking down. If current trends continue, poverty rates among the elderly will increase and middle-class retirees will find that their retirement income will not pay for the lifestyle they achieved while working. This will be the first time since World War II that the standard of living of elderly Americans declines while that of prime- age workers increases.
This reversal is due to tax and regulatory policies that fail to promote retirement savings and penalize defined-benefit plans. Regulations favor, and tax subsidies increasingly go to, the wrong kinds of retirement programs. As a result, 401(k) plans and other defined-contribution plans1 that were designed to supplement, not replace, traditional pensions are growing at the expense of defined-benefit plans that provide secure supplemental income to Social Security.
Tax breaks for 401(k) plans amounted to $110 billion in 2006, most of which went to households in the top tax brackets. These tax breaks mostly cause wealthy households to shift savings to tax-favored accounts rather than increase overall savings (Chernozhukov and Hansen 2004; Engen and Gale 2000)—thus the paradox that taxpayers are giving up more and more revenue to promote retirement savings while retirement security declines.
In fact, the Urban-Brookings Tax Policy Center found that income tax expenditures for retirement plans were actually larger than personal savings in 2003, including contributions to retirement plans (Bell, Carasso, and Steuerle 2004). This occurred despite a confluence of factors that should have boosted savings growth, including a sharp increase in the amount of money people could shelter from tax in accounts that are intended for retirement savings, an older and more educated workforce, and an economy in which the wealthy, who tend to save more, have received the lion’s share of recent income increases.
This paper proposes a rescue plan for the American retirement income security system, based on a mixed system composed of Social Security, employer defined-benefit pension plans, and a new type of personal retirement savings account called a Guaranteed Retirement Account (GRA). This rescue plan will not work without a strong defined-benefit pension system and a strong Social Security system. Tax breaks for 401(k)-style plans and IRAs will be converted into flat tax credits to offset the cost of these new accounts, so the plan will improve the retirement security of most Americans without costing taxpayers more than the current system.
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. Most defined-benefit plans yield a much higher benefit than even Guaranteed Retirement Accounts, though they typically also require average contributions of over 6% of payroll for sustainability.
The Guaranteed Retirement Account plan will help reverse the slide in employer-provided defined-benefit plans. Employers who are now considering converting their defined-benefit plans to 401(k)s to save money will find that option much less attractive without tax benefits, and will therefore be more likely to retain their defined-benefit plans. Meanwhile, employers currently offering 401(k)s as a recruitment and retention tool may switch to defined-benefit plans, since particular employers cannot distinguish themselves by offering Guaranteed Retirement Accounts (as with Social Security).
The first section of this paper describes GRAs. The second and third sections provide an overview of the current system and describe how it increasingly fails to meet 10 standards of a good retirement security system. The fourth section explains how the Guaranteed Retirement Account plan would address these failures, and the fifth answers questions about the plan. The final section compares the plan to other reform ideas, such as auto 401(k) enrollment and raising the retirement age.
Making 401(k)s And IRAs More Like Personal Pension Plans
Who's confiscating your 401(k) and IRA? Dateline Raleigh, NC, November 6, 2008: Democratic leaders in the U.S. House of Representatives discuss confiscating our 401(k)s and IRAs, by Carolina Journal Online reporter Karen McMahan.
This shocking pronouncement is certainly an attention grabber, which if even partially true, would have an impact on nearly every employed and retired American. The basis for the report is testimony before the House Committee on Education and Labor in early October.
Dr. Teresa Ghilarducci is one of many witnesses (scholars, retirees, activists, an investment mogul, and benefits experts) who were interviewed by the committee members. (I was skipped over once again, but a receptive person in the HCEL was willing to forward a listing of my articles to the right person. I expect an invitation to testify momentarily)
McMahan writes: "Dr. Ghilarducci, professor of economic policy analysis at the New School for Social Research, drew the most attention and criticism. She proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers' retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration."
Several people have asked me to comment on the probability of such a radical approach ever getting any support, much less actually being implemented. Most feel that even the most socialistic of legislators would give the doctor's ideas a quick thumbs down. I agree that they should, but part of the concept, tuned up "capitalistically", could be precisely what this investment doctor would order.
Years ago, a not-quite-as-sophisticated-as- the-internet rumor mill spread a story that the Feds were scouring the countryside, knocking on doors, and confiscating $100 bills. The purpose of the venture was to put an end to the income-tax-dodging underground economy of the 80's. Babysitters panicked, restaurateurs iced their C-notes in freezers, and self-employed franchisees plotted Caponesque money laundering schemes.
Nothing happened then that a 10% (or lower) Federal sales tax (coupled with seriously lower income taxes at all levels) wouldn't cure today. So as scary as a 401(k) or IRA confiscation plan would be now, the panic will likely fade quietly away, just like the $100 bill outrage of the 80's. The underground tax dodging continues, and at a magnitude that dwarfs any temporary tax relief that is afforded today's self-directed savings plans.
One would think that, as a society, we would be capable of pouncing upon opportunities for brilliant solutions to problems of fairness like these. We just can't seem to get out of our own political way. The fix to the retirement investment account fiasco is only slightly more complex than the incredibly easy solution to Social Security.
Dr. Ghilarducci has presented a socialist solution to a problem that could easily be dealt with using rudimentary controls that would limit the amount of risk allowed inside these tax deferred savings devices. She also ignores the fact that most self-directed money lies in voluntary, privately sponsored, employee benefit programs--- emphasis on voluntary and private.
This shocking pronouncement is certainly an attention grabber, which if even partially true, would have an impact on nearly every employed and retired American. The basis for the report is testimony before the House Committee on Education and Labor in early October.
Dr. Teresa Ghilarducci is one of many witnesses (scholars, retirees, activists, an investment mogul, and benefits experts) who were interviewed by the committee members. (I was skipped over once again, but a receptive person in the HCEL was willing to forward a listing of my articles to the right person. I expect an invitation to testify momentarily)
McMahan writes: "Dr. Ghilarducci, professor of economic policy analysis at the New School for Social Research, drew the most attention and criticism. She proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers' retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration."
Several people have asked me to comment on the probability of such a radical approach ever getting any support, much less actually being implemented. Most feel that even the most socialistic of legislators would give the doctor's ideas a quick thumbs down. I agree that they should, but part of the concept, tuned up "capitalistically", could be precisely what this investment doctor would order.
Years ago, a not-quite-as-sophisticated-as- the-internet rumor mill spread a story that the Feds were scouring the countryside, knocking on doors, and confiscating $100 bills. The purpose of the venture was to put an end to the income-tax-dodging underground economy of the 80's. Babysitters panicked, restaurateurs iced their C-notes in freezers, and self-employed franchisees plotted Caponesque money laundering schemes.
Nothing happened then that a 10% (or lower) Federal sales tax (coupled with seriously lower income taxes at all levels) wouldn't cure today. So as scary as a 401(k) or IRA confiscation plan would be now, the panic will likely fade quietly away, just like the $100 bill outrage of the 80's. The underground tax dodging continues, and at a magnitude that dwarfs any temporary tax relief that is afforded today's self-directed savings plans.
One would think that, as a society, we would be capable of pouncing upon opportunities for brilliant solutions to problems of fairness like these. We just can't seem to get out of our own political way. The fix to the retirement investment account fiasco is only slightly more complex than the incredibly easy solution to Social Security.
Dr. Ghilarducci has presented a socialist solution to a problem that could easily be dealt with using rudimentary controls that would limit the amount of risk allowed inside these tax deferred savings devices. She also ignores the fact that most self-directed money lies in voluntary, privately sponsored, employee benefit programs--- emphasis on voluntary and private.
Killing 401(k)’s?
It’s still more than two months before the Obama administration takes office, and we are already seeing signs of just how the Democrats intend to govern.
One proposal being floated by Congressional Democrats aims to abolish the tax incentives for individual 401(k) retirement plans. With the recent financial meltdown having hit a lot of people’s funds heavily, those lawmakers think that the time would be ripe to end the private system and fold it into an expansion of Social Security.
The current plan, crafted by Professor Teresa Ghilarducci of the New School of Social Research in New York City, would eliminate tax breaks for these retirement plans. This would be coupled to an increase in Social Security taxes to fund an expanded retirement plan for workers.
The appeal of this plan is very, very shallow. Yes, the financial meltdown has seriously wounded many retirement funds. But over the long term, the stock market is always a good investment. Further, the financial markets are already in serious trouble. If the government eliminates the tax breaks for 401(k) plans and increases the Social Security tax, then the net result will be the diversion of literally billions of dollars out of the financial market and straight into the government’s coffers. That would be another critical blow to the already-shaky financial infrastructure of our nation.
At the same time, the heads of the big three automakers and their unions have been holding meetings with Congressional leadership about a possible bailout for their industry. The auto makers are in critical condition, and are looking for a cash infusion (like the one the financial market got) to keep them from going under.
One proposal being floated by Congressional Democrats aims to abolish the tax incentives for individual 401(k) retirement plans. With the recent financial meltdown having hit a lot of people’s funds heavily, those lawmakers think that the time would be ripe to end the private system and fold it into an expansion of Social Security.
The current plan, crafted by Professor Teresa Ghilarducci of the New School of Social Research in New York City, would eliminate tax breaks for these retirement plans. This would be coupled to an increase in Social Security taxes to fund an expanded retirement plan for workers.
The appeal of this plan is very, very shallow. Yes, the financial meltdown has seriously wounded many retirement funds. But over the long term, the stock market is always a good investment. Further, the financial markets are already in serious trouble. If the government eliminates the tax breaks for 401(k) plans and increases the Social Security tax, then the net result will be the diversion of literally billions of dollars out of the financial market and straight into the government’s coffers. That would be another critical blow to the already-shaky financial infrastructure of our nation.
At the same time, the heads of the big three automakers and their unions have been holding meetings with Congressional leadership about a possible bailout for their industry. The auto makers are in critical condition, and are looking for a cash infusion (like the one the financial market got) to keep them from going under.
Who's Confiscating Your 401(k) And IRA?
This shocking pronouncement is certainly an attention grabber, which if even partially true, would have an impact on nearly every employed and retired American. The basis for the report is testimony before the House Committee on Education and Labor in early October.
Dr. Teresa Ghilarducci is one of many witnesses (scholars, retirees, activists, an investment mogul, and benefits experts) who were interviewed by the committee members. (I was skipped over once again, but a receptive person in the HCEL was willing to forward a listing of my articles to the right person. I expect an invitation to testify momentarily)
McMahan writes: "Dr. Ghilarducci, professor of economic policy analysis at the New School for Social Research, drew the most attention and criticism. She proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers' retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration."
Dr. Teresa Ghilarducci is one of many witnesses (scholars, retirees, activists, an investment mogul, and benefits experts) who were interviewed by the committee members. (I was skipped over once again, but a receptive person in the HCEL was willing to forward a listing of my articles to the right person. I expect an invitation to testify momentarily)
McMahan writes: "Dr. Ghilarducci, professor of economic policy analysis at the New School for Social Research, drew the most attention and criticism. She proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers' retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration."
Government To Confiscate 401(k)s and IRAs For Mandatory Savings Tax?
Proposals to implement additional form of income tax while seizing private pensions raised in Congress. Under the pretext of combating the financial crisis, Democrats in Congress have been conducting hearings on proposals to confiscate private retirement accounts and turn them into government-controlled accounts managed by the Social Security Administration, by implementing a new tax in the guise of mandatory savings scheme.
Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, testified before Congress last month, proposing that 401(k)s and IRAs be confiscated and converted into universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.
The GRAs would be enforced by means of a mandatory savings tax equating to 5 per cent of an individual’s annual paycheck deposited to the GRA. Social Security and Medicare taxes would still be payable, employers would no longer would be able to write off their contributions and capital gains would be taxable year-on-year. In addition, workers could bequeath only half of their account balances to their heirs, unlike full balances from existing 401(k) and IRA accounts.
Unfortunately, as we have again painfully learned in light of the Federal Reserve’s refusal to identify where $2 trillion of taxpayers’ money has gone, governments that propose “spreading the wealth” under socialist-style financial reforms almost always collect the wealth under the pretext of being the saviors before greedily hoarding it all for themselves.
Social Security is not the mandatory retirement savings plan it was sold as to the American people. It is simply another tax. Ghilarducci admits the bait and switch in one breath and in the other proposes the next bait and switch. Except, this time it will be different.” Would the government risk a widespread revolt and potential riots by confiscating 401(k)s and IRAs? They probably wouldn’t brazenly do it under that banner, but in the name of financial reform and saving the economy, Americans could find their voluntary retirement savings stolen and replaced by a government promise of a completely devalued mandatory savings account.
Argentina has already vowed to push through similar measures in the name of rescuing the wider financial system. Last month, the government of the South American country signed a bill to mandate the National Social Security Administration takeover of $30 billion worth of private pensions.
Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, testified before Congress last month, proposing that 401(k)s and IRAs be confiscated and converted into universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.
The GRAs would be enforced by means of a mandatory savings tax equating to 5 per cent of an individual’s annual paycheck deposited to the GRA. Social Security and Medicare taxes would still be payable, employers would no longer would be able to write off their contributions and capital gains would be taxable year-on-year. In addition, workers could bequeath only half of their account balances to their heirs, unlike full balances from existing 401(k) and IRA accounts.
Unfortunately, as we have again painfully learned in light of the Federal Reserve’s refusal to identify where $2 trillion of taxpayers’ money has gone, governments that propose “spreading the wealth” under socialist-style financial reforms almost always collect the wealth under the pretext of being the saviors before greedily hoarding it all for themselves.
Social Security is not the mandatory retirement savings plan it was sold as to the American people. It is simply another tax. Ghilarducci admits the bait and switch in one breath and in the other proposes the next bait and switch. Except, this time it will be different.” Would the government risk a widespread revolt and potential riots by confiscating 401(k)s and IRAs? They probably wouldn’t brazenly do it under that banner, but in the name of financial reform and saving the economy, Americans could find their voluntary retirement savings stolen and replaced by a government promise of a completely devalued mandatory savings account.
Argentina has already vowed to push through similar measures in the name of rescuing the wider financial system. Last month, the government of the South American country signed a bill to mandate the National Social Security Administration takeover of $30 billion worth of private pensions.
Targeting Your 401(k)
You may have heard about Argentina's plan to nationalize private retirement accounts. Some Democrats on Capitol Hill are inspired, and with their big election victory they may get the chance to test Peronist ideas in America.
Meet Congressmen George Miller and Jim McDermott, who are eager to change the way Americans save for their golden years. They'll also be powerbrokers in the next Congress. Mr. Miller, who came in with the Class of 1974 from California, chairs the House Education and Labor Committee. Mr. McDermott, who has represented Seattle the past two decades, runs a House Ways and Means subcommittee on income security and family support.
Before Election Day, the Congressmen began to target the $3 trillion in 401(k) accounts held by about 60% of Americans. Mr. Miller called the system "an inadequate vehicle" that "has not been terribly successful" in encouraging retirement savings. He wants a "wholesale re-examination" of pensions.
Just what alternative these Democrats support is unclear, and nothing has been formally proposed beyond Mr. Miller's plan to make the system "more transparent," reduce fees charged by the money managers, and suspend the tax penalty for seniors over 70 who don't take the "required minimum" withdrawal from their account, regardless of the market situation.
Meet Congressmen George Miller and Jim McDermott, who are eager to change the way Americans save for their golden years. They'll also be powerbrokers in the next Congress. Mr. Miller, who came in with the Class of 1974 from California, chairs the House Education and Labor Committee. Mr. McDermott, who has represented Seattle the past two decades, runs a House Ways and Means subcommittee on income security and family support.
Before Election Day, the Congressmen began to target the $3 trillion in 401(k) accounts held by about 60% of Americans. Mr. Miller called the system "an inadequate vehicle" that "has not been terribly successful" in encouraging retirement savings. He wants a "wholesale re-examination" of pensions.
Just what alternative these Democrats support is unclear, and nothing has been formally proposed beyond Mr. Miller's plan to make the system "more transparent," reduce fees charged by the money managers, and suspend the tax penalty for seniors over 70 who don't take the "required minimum" withdrawal from their account, regardless of the market situation.
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