Relax - give the Feds an additional 5% to spend, and your retirement is in good hands.
| Why McCain hasn't turned this into a campaign ad yet I don't know ... |
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.
| It's not a break, it's a deferral. When you retire and cash your 401k you pay the taxes on the disbursement. |
House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-HAMAS (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.
| We have one of those already. |
A plot 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.
| That she's from the 'New School' is all you need to know. |
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.
| Bad as that is, what Ghilarducci proposes is far worse. |
Under Ghilarducci's plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government ...
| Guess where that 'subsidy' comes from ... |
... 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 bonds, of course, fund all the new spending for Congress. |
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."
| Hers is one voice in 300 million. Do the rest of us get a say? |
Under the current 401(k) system, investors are charged relatively high retail fees, Ghilarducci said.
| NOT TRUE. You can invest your 401k at Vanguard (for example) or Fidelity in an indexed fund and pay fees that are very, very low. |
"I want to spend our nation's dollar for retirement security better. Everybody would now be covered" if the plan were adopted, Ghilarducci said.
| How in the world would that be true? You get your money compounded at 3% instead of 7%, the historical market return, and it gets invested into government bonds that the Congress uses to burn more money. How is that better for anyone other than Congress? |
She has been in contact with Miller and McDermott about her plan, and they are interested in pursuing it, she said.
| Well sure they are, they love spending other people's money. |
"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. 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."
| That's an idiot statement. The savings rate isn't the issue here. People lock up money for long periods of time into equities, and that helps our economy far more than having the money used to facilitate more government spending. |
"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 Dhimmicrats have to be seen as 'doing something', even if it is ultimately destructive. |
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.
| Yup, that's just what it is. Miller and McDermott will be back in January. |
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