RSSHold on to your 401(k)…if you can.
If you agree with us that this plan is a bad idea after reading the details below, then TAKE ACTION NOW. You can send an email to your elected representatives in Washington, D.C., and the chairmen of the two House committees considering this proposal by clicking here.
Overhauling the 401(k) System
During the week of October 6th, Theresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York testified before the House Education and Labor Committee chaired by Rep. George Miller, D-California and the House Ways and Means Committee’s Subcommittee on Income Security and Family Support chaired by Rep. Jim McDermott, D-Washington. Components of the plan include the following:
- 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. This money would be invested in special government bonds that would accrue 3 percent per year. [PerotCharts question: Does this sound vaguely similar to the current Social Security Trust Fund?]
- 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.” [PerotCharts note: We already have these types of accounts; they’re called brokerage accounts.]
- To make the plan more palatable, Ms. Ghilarducci offered an incentive, “Short term I propose…that Congress allow workers to swap out their 401(k) assets, perhaps at August level for a guaranteed retirement account.” [PerotCharts note: The idea here is to induce holders of 401(k) plans to turn over their plan assets to the government in exchange for restoring the balance in their 401(k) plans prior to the stock market collapse in September and October.]
- The plan would allow workers to pass on only half of their account balances to their heirs; presumably the government would keep the remaining half. [Currently, 401(k) balances are fully inheritable.]
Observations by PerotCharts.com:
- Many people contribute to their 401(k) plans because their employers match their contributions. Eliminating the tax break for 401(k)s would make the matching portion taxable to the recipient and subject to additional FICA taxes payable by both the employer and the employee.
- Eliminating tax breaks for 401(k) plans pushes individuals into higher tax brackets even though they have no additional disposable income.
- Apparently, there was no mention as to the rate at which the government would pay your money back to you when you reach retirement age.
- Although the chairman of the House Education and Labor Committee stopped short of endorsing the plan, it was reported that he was clearly against continuing tax breaks for 401(k)s as they currently exist.
- No mention was made of the fact that, under the proposed plan, the government would need to liquidate the stock portfolios of the former 401(k) holders. Neither was it explained how the market could absorb $3 trillion of securities currently held in 401(k) plans.
- There is no indication that the new administration favors this proposal. It is in discussion stages of the two committees mentioned above.
20 Responses to “Hold on to your 401(k)…if you can.”
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November 16th, 2008 at 4:56 pm
I sent eMails to two reps/senators and a letter to one senator (John Warner who does not take eMails and to Roy Blunt (whip–acting on behalf of republicans thereby representing all of us no matter where we reside, and the same for Eric Cantor who got a voicemail message because he has not eMail on his site that I can find.
No tax increase to the middle class–he shouted as he ran through the country. We (people like me) explained the truth but you did not listen. We showed you where to see what Congress is really doing before you voted–but you did not read–you laughed at others and me.
This proposal is the outcome of putting your/our head(s) in the sand and ignoring the pre-election warnings. Let us stop this before it becomes a reality.
Please take time today and (politely) let everyone in the house and senate that you oppose the government coming into our bank accounts and taking our money to redistribute it as they see fit and to whom they see fit.
Thank you all.
I am just astounded at this idea getting so far along…are they taking just money or property and how much–from whom????
I am truly angry. Thank you for getting the facts out.
November 16th, 2008 at 7:38 pm
This sounds like just another way for the government to grab more of peoples’ hard-earned money so they can then turn it over to their crooked, overpaid corporate cronies and bankers. I don’t even have a 401(k) plan, but can see this a terrible idea.
November 17th, 2008 at 4:05 pm
Response to Mr. Mike Kruger from the House Education and Labor Committee. (See Comment 13 below.)
We appreciate your response to the posting about the testimony of Prof. Ghilarducci to the House Education and Labor Committee. We agree with two of the points that you make concerning 401(k) plans: (1) we, too, support any proposals that would disclose hidden fees associated with the retirement plans of individuals; and (2) certainly, it makes perfect sense to suspend the unfair tax penalty for seniors who don’t take a minimum withdrawal from their depleted retirement accounts. In addition, we also agree with all of your suggestions for improvements to 401(k) plans mentioned in your website at http://edlabor.house.gov/issues/strengthening401ks.shtml.
Our apprehension about the future of 401(k) plans stems from several reports that were most likely fostered by this article in “Investment News” http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081012/REG/310139971.
In addition to the passages already mentioned in the original post, the article also contained the following information:
“I want to spend our nation’s dollar for retirement security better. Everybody would now be covered” if the plan were adopted, Ms. Ghilarducci said. [Question: Exactly what is “our nation’s dollar for retirement”?]
She has been in contact with Mr. Miller and Mr. McDermott about her plan, and they are interested in pursuing it, she said.
“This [plan] is certainly intriguing,” said Mike DeCesare, press secretary for Mr. McDermott.
‘This is part of the discursion,” he said.
While Mr. Miller stopped short of calling for Ms. Ghilarducci’s plan at the hearing last week, he was clearly against continuing tax breaks as they currently exist.
To us, the proposal looks like and sounds like yet another entitlement program.
If, in fact, the author of the article in Investment News misinterpreted Rep. Miller’s and Rep. McDermott’s views about the future of the taxation of 401(k) plans, please let us know.
Editor
PerotCharts.com
November 18th, 2008 at 2:36 pm
Response to PerotCharts (and all who are following this story)
Investment News totally misrepresented Chairman Miller’s views and position on the taxation of 401(k) plans. Chairman Miller does not support ‘abolishing’ 401(k)s, moving these plans, or changing their tax status, plain and simple.
Mike Kruger
House Education and Labor Committee
December 29th, 2008 at 1:48 pm
Anyone who believes you can eliminate the 401(K) or SEP retirement plans is a mental midget. It would destroy the financial markets and have people more reliant on a government that no one should trust. Had we had good, responsible leadership the last 16 years, it is highly likely that the problems we are seeing today would never have happened. It would be a different world, but the problems of “extreme” would have never been born.