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.
18 Responses to “Hold on to your 401(k)…if you can.”
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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
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 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 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 15th, 2008 at 3:28 pm
It would be economic suicide to raise taxes at this point. The people can spend their own money far better than any government bureaucratic boongoggle can. How can you justify government spending anything with any degree of responsibility after witnessing what they have already perpetrated on our next four generations! I don’t mean to be vague but I have to say that again Ross was correct in pointing out this impending financial mess years ago. Did anyone in government listen? Maybe a few, but they were drowned out by our disgraceful corrupt media. I remember when Ross couldn’t buy airtime from any of the major networks to try to warn us from what is happening now. They tried to block him in every way and succeeded. Oh, they don’t have their own agenda, yeah right! By the way,I use the newspaper to line my cat box! Thats it!
I still voted for Ross Perot because i had to vote my conscience, and if people thought that he had a chance, he would have won bigtime. It is our responsibility as individuals to keep a close eye on who we put into office from the local levels up to the highest. I’m sure this mess would start to clear up if every single public servant trusted with spending the taxpayers money was held to fiscal responsibility as well as accountability. These people are supposed to be public servants after all. Do they act like public servants? Do you think they are acting in your best interest? No way, government should have a limited role anyway being that they have proven over and over to be utterly incompetent in every way.
What happened to learning from history? Government can’t solve these problems, we can by holding their feet to the fire and holding them accountable. I love this quote by Thomas Jefferson,” When you have a people that fear its government, you have tyranny, When you have a government that fears the people, you’ll have democracy.” Which one applies right now?? If we forced our 9% rated congress to work like a sequestered jury, they might manage to accomplish something for once besides voting themselves pay raises. By the way, wouldn’t you like to vote yourself a pay raise like our congress? “I think i’ll give myself a raise today!” Do you think any of these people run their personal lives the way they govern? The problem is they aren’t held accountable. If we were faced with these problems in our own lives, we wouldn’t have the luxury of taking a vacation or recess every time it’s convenient. I certainly wouldn’t, I’d be embarassed and ashamed of a 9% rating personally. These are all perfect reasons for completely streamlining our government and forcing it to finally work for the people the way it was intended. That is why it’s so important for us to dump the corrupt two party system and take back our country. This can be accomplished if we really want our government to work the way it was origionally intended. This would address and solve all of the problems eloquently noted in the commentary above. We just have to believe that it can be done, then do it.
Please keep up the good work.
November 13th, 2008 at 3:08 pm
The rumors that some in Congress, including Chairman George Miller, are planning to confiscate Americans’ 401(k)s are absolutely ridiculous. Fact checkers (http://www.msnbc.msn.com/id/27487450) have called these claims by partisan hacks as “last-minute election fear mongering.”
We are not considering proposals to take away your 401(k), tax your 401(k) or force you into a government program. Plain and simple.
In fact, Chairman Miller is working to preserve and strengthen 401(k)s. He wants to ensure that 401(k)s adequately protect workers’ nest eggs by disclosing hidden fees that are eating into Americans’ retirement accounts. And, because older Americans stand to suffer the most from the economic downturn, Miller has called for the suspension of the unfair tax penalty for seniors who don’t take a minimum withdrawal from their depleted retirement accounts.
If you want to know more about what Chairman Miller is doing to make sure that American workers can enjoy a safe and secure retirement, go to our website: http://edlabor.house.gov/issues/strengthening401ks.shtml
Mike Kruger
House Education and Labor Committee
November 13th, 2008 at 12:55 pm
Take a good look at the people being targeted in this effort. The participants in the 401K’s tax deferral program are generally private sector working people making $40,000 or $50,000 and up. My experience in managing large groups of people is that those in the lower income brackets do not contribute to 401K’s despite employer matching. Those who do not contribute also represent the group who most likely will receive a check from President Obama under his income redistribution plan.
In this country, we have allowed the middle class to whither, leaving haves and have nots. The Democrats have seized on this emerging lower income demographic and are using it to build a new powerful Democrat voting bloc - those who are seeking government to manage their lives and take care of them. All future plans of the Democrats will focus on this group - thus the elimination of 401K tax deferral.
Should anyone feel comfortable giving up their 401K for a guarantee from our government that they will be taken care of - No!
http://brokengovernment.wordpress.com
November 12th, 2008 at 6:18 pm
This sure reeks of a “tax increase” for those fortunate enough to have a 401k or similar program. The Gov’t has been hammering us with advice to save for a retirement & don’t depend solely on Social Security during your retirement years. So now I have done so & they propose to change the rules & penalize me for being prudent & following their advice. The Gov’t can’t take care of itself, how or why should I trust them with more of my money? After the $700 billion bailout, & growing by some estimates to $3.5 trillion after just a few weeks, & now more are holding their hands out; I’m plenty mad at any proposal of this nature. This bailout was a hugely bi-partisan bill with no checks & balances to see that the money would be used as the Congress intended. If the Gov’t needs more money here’s a novel idea; quit spending it! There is a tomorrow & they are spending not only our kids’ future, but several generations to boot. The big Fat Cats on Wall Street; rich CEOs & other high ranking corporate officials getting pats on the back for failing companies is insane! All the while, “Joe the Plumber” on Main Street is trying to figure out where his family’s next meal is coming from. Failing companies won’t be hiring anytime soon; altho, their CEOs will get huge bonuses anyway. The average “Joe” on Main Street just wants a decent job to keep a roof over his/her family & food on the table & to provide the family with some “perks” now & then.
The next election can’t come fast enough for me so I can vote against more incumbents.