Democrats want your 401K

rodbender

Active Member
Jul 25, 2008
343
16
Elgin, Texas
House Democrats Contemplate Abolishing 401(k) Tax Breaks | workforce.com


House Democrats Contemplate Abolishing 401(k) Tax Breaks
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.
October 16, 2008
House Democrats Contemplate Abolishing 401(k) Tax Breaks
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.
 

kville79

Active Member
May 24, 2008
443
16
Austin
Sooooo.... the Federal government wants to run my retirement plan and F* it all up like social security? waiiiiit... isn't that what social security was supposed to be in the first place?
 

BeNotAfraid

Active Member
Jul 15, 2008
207
16
Red River, Texas
...fellas, you and I know EXACTLY where this path is leading.

Them that gots (by busting their humps)
are gonna be robbed to pay
Them that sit on their haunches.

How long before we cry: "ENOUGH!"
 

JKTex

Well-Known
Mar 11, 2008
2,011
38
DFW, North Texas
What gets me is that they are calling the $80bln a year an "investment" when what it really is, is $80bln in tax the government isn't getting but employers and employees are keeping. So by eliminating the tax breaks, employers will be paying higher taxes, taxes which will be used to subsidize a new guaranteed Federal retirement plan by with $600 a year to an employee's account as long as the employee is contributing 5% of his/her income to the same account.

So it's basically, take money out of our hands and redistribute it for us, because we're to stupid to do it ourselves.

Ya, I trust a "guaranteed" Federal account.

Of course, if incentives to keep a 401k are lifted, people can/will start tapping their retirement accounts to pay down debt or buy more stuff they can't afford and the purpose of protected "retirement" funds for everyone is a wash as they deplete and the new plan starts from scratch.
 

JKTex

Well-Known
Mar 11, 2008
2,011
38
DFW, North Texas
...fellas, you and I know EXACTLY where this path is leading.

Them that gots (by busting their humps)
are gonna be robbed to pay
Them that sit on their haunches.

How long before we cry: "ENOUGH!"
I need a drink to figure that out.

But if I get your point, that's not the case since only those that contribute 5% of their income into this plan will get the $600 subsidy from the Government. However, the comment about "everyone" isn't addressed because "everyone" doesn't have an employer to contribute through.

Maybe that's the part they're keeping under wraps so we don't see all the welfare freeloaders that will get their own free retirement account somehow.

How are people so stupid to put people like these into office???? We ought to be collectively smacked!
 

OldGringo

Member
Aug 16, 2008
159
16
S.W. Houston Area
...fellas, you and I know EXACTLY where this path is leading.

Them that gots (by busting their humps)
are gonna be robbed to pay
Them that sit on their haunches.

How long before we cry: "ENOUGH!"
I cried enough with my early ballot this afternoon! Hope I yelled it loud enough to be heard????? :1zhelp:
 

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