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.