Posted on 11/03/2008 3:44:16 PM PST by Im4realamerica
Powerful House Democrats are eyeing 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-California, and Rep. Jim McDermott, D-Washington, 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.
A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. She testified last week before Miller’s Education and Labor Committee on her proposal.
At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months.
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.
The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.
“I want to stop the federal subsidy of 401(k)s,” Ghilarducci said in an interview. “401(k)s can continue to exist, but they won’t have the benefit of the subsidy of the tax break.”
Under the current 401(k) system, investors are charged relatively high retail fees, Ghilarducci said.
“I want to spend our nation’s dollar for retirement security better. Everybody would now be covered” if the plan were adopted, Ghilarducci said.
She has been in contact with Miller and McDermott about her plan, and they are interested in pursuing it, she said.
“This [plan] certainly is intriguing,” said Mike DeCesare, press secretary for McDermott.
“That is part of the discussion,” he said.
While Miller stopped short of calling for Ghilarducci’s plan at the hearing last week, he was clearly against continuing tax breaks as they currently exist.
Savings rate “The savings rate isn’t going up for the investment of $80 billion,” he said. “We have to start to think about ... whether or not we want to continue to invest that $80 billion for a policy that’s not generating what we now say it should.”
“From where I sit that’s just crazy,” said John Belluardo, president of Stewardship Financial Services Inc. in Tarrytown, New York. “A lot of people contribute to their 401(k)s because of the match of the employer,” he said. Belluardo’s firm does not manage assets directly.
Higher-income employers provide matching funds to employee plans so that they can qualify for tax benefits for their own defined-contribution plans, he said.
“If the tax deferral goes away, the employers have no reason to do the matches, which primarily help people in the lower income brackets,” Belluardo said.
“This is a battle between liberalism and conservatism,” said Christopher Van Slyke, a partner in the La Jolla, California, advisory firm Trovena, which manages $400 million. “People are afraid because their accounts are seeing some volatility, so Democrats will seize on the opportunity to attack a program where investors control their own destiny,” he said.
The Profit Sharing/401(k) Council of America in Chicago, which represents employers that sponsor defined-contribution plans, is “staunchly committed to keeping the employee benefit system in America voluntary,” said Ed Ferrigno, vice president in the Washington office.
“Some of the tenor [of the hearing last week] that the entire system should be based on the activities of the markets in the last 90 days is not the way to judge the system,” he said.
No legislative proposals have been introduced and Congress is out of session until next year.
However, most political observers believe that Democrats are poised to gain seats in both the House and the Senate, so comments made by the mostly Democratic members who attended the hearing could be a harbinger of things to come.
Advice at issue In addition to tax breaks for 401(k)s, the issue of allowing investment advisors to provide advice for 401(k) plans was also addressed at the hearing. Rep. Robert Andrews, D-New Jersey, was critical of Department of Labor proposals made in August that would allow advisors to give individual advice if the advice was generated using a computer model.
Andrews characterized the proposals as “loopholes” and said that investment advice should not be given by advisors who have a direct interest in the sale of financial products.
The Pension Protection Act of 2006 contains provisions making it easier for investment advisors to give individualized counseling to 401(k) holders.
“In retrospect that doesn’t seem like such a good idea to me,” Andrews said. “This is an issue I think we have to revisit. I frankly think that the compromise we struck in 2006 is not terribly workable or wise,” he said.
On Thursday, October 9, the Department of Labor hastily scheduled a public hearing on the issue in Washington for Tuesday, October 21.
The agency does not frequently hold public hearings on its proposals.
Filed by Sara Hansard of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
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I’m becoming partial to “MaoBama” myself
This sounds like the Democrats’ plan to bail out social security , a 5% extra levy on everyone’s wages should be enough to pay the social security benefits for the baby boomer generation.
Calling it “savings” is just a new tilt on it to give the scam resiliency once people have a considerable amount “invested” in it.
http://digg.com/business_finance/House_Democrats_Contemplate_Abolishing_401_k_Tax_Breaks_2
digg it if you havent already.
I sure hope they try it, and Pelosi is just stupid enough to let them bring to a floor vote. There’d be so many Congressmen running for cover it would look like a bad 1950’s Godzilla movie.
Try searching. This was first posted the first of last week. In several different ways, so probably up two or three times.
This measure will in one swoop destroy our banking system for generations. Once the government nationalizes peoples bank accounts no one will be dumb enough to leave money in the bank again.
Americans are already scouting out locations in the back yard to bury the tin can full of cash.
No doubt about it.
This is just another payroll tax like Social Security with IOUs from the government backing any measly benefit that you might receive if the government says so. If you die all this money of course will just be the governments and not pass to your heirs.
If the contribution is not tax deductible might as well have a Roth IRA.
New School has always been a lefty bastion. President is Bob Kerry.
Want a revolution - go there you stinking commies.
Great kickoff for CWII.
Apparently a lot of 401(k) holders are supporters of Oprah’s Obama. It will be nice to see those Obamamaniacs “sacrifice” for the “public good”.
It would have been impossible to convince the American people of this danger even if McPain had tried to do so.
She has also called for government confiscation of the balances of all existing retirement accounts. It would only be fair, you know, to redistribute the wealth. Ms. Ghilarducci is an idiot, but the Dems and Libs just love her ideas.
It would seem they want to make it more attractive to be poor. Big shock there.
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