Re-inflating our 401(k)s

Have you heard about the Plot Against Your 401(k)? It's not going to go away.

The issue surfaced during the presidential campaign when economist Teresa Ghilarducci testified at a congressional hearing about what she sees as a Plot Against Pensions (which is part of the subtitle of her book on the subject).

Ghilarducci, and a fair number of sympathetic Democrats, believe that 401(k)s and similar defined-contribution pension plans are a disaster for middle-class Americans. Her timing is apt, since the recent market collapse has many 401(k) owners thinking exactly the same thing.

Ghilarducci wants voluntary 401(k)s to be replaced with a mandatory government program that would allow retirees to turn in their sagging 401(k)s in exchange for guaranteed government payouts.

This set off a round of attacks by conservative talk-show hosts including some who railed against government "seizure" of private 401(k)s. It wouldn't be a seizure, since existing accounts would be grandfathered.

That doesn't mean there are no problems with the idea, but, as Time magazine columnist Justin Fox wrote recently, there are problems as well with existing plans.

The term 401(k) refers to a section of the Internal Revenue Code that allows an employee to put pretax money into a private retirement account, where it is invested in stocks and bonds and can grow, tax-free, until retirement, at which time it is taxed on withdrawal.