House Democrats Contemplate Abolishing 401(k) Tax Breaks[

[mosullivan]

Has anyone considered how we will "look" in a few years? The following surely caught my attention, considering I am in the pension business. The key element of the Ghilarducci proposal is that it amounts to compelling workers to make forced loans to the government. The Treasury would receive cash up front (five percent of the nation's aggregate payroll to fund Barack Obama's spending programs. The bonds wouldn't have to be redeemed until the lenders retired. Repayment would, of course, necessitate raising taxes, cutting spending, or re-borrowing, but that problem can be worried about mañana. Now anyone want to guess the probability this passes? I believe we are about to see an atempt soon!

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.

[The Grey Badger]

Link to source, please?

[JimZ]

Is there any way OUT of this if the Marxist wins...excuse me, I mean the "Chosen One".

I am concerned about them changing the rules, forcing my $$ into this forced theft, and I end up with no way to opt out and no way to liquidate my 401K in order to avoid this confiscation of my personal assets.

[Witchiepoo]

This is why I never participated in 401k plans. Never. I've never trusted others to look out for my money better than I can.

I'm also realllly glad to be self-employed right now. It gives you a lot more choices with how you want to provide for your own benefits. If the Marxist aka Jesus Part Deux decides to also clamp down on the self-employed ... well ... let's just hope that America wakes back up by then. Nationalized health care will be a great shock to our system, especially for those who still seem to believe that you can somehow get something for nothing.

But, as I've said elsewhere, I think that people might actually need to experience these changes before they realize just how badly they suck. A lot of people aren't old enough to remember the Carter years.

[mosullivan]

The article was from Workforce Dynamics. If you google any part of the subject you will be able to chose from many sources.

Take Care, MOS

[scotths]

Nationalized health care will be a great shock to our system, especially for those who still seem to believe that you can somehow get something for nothing.

Well.. Now we get something for twice as much per person as the rest of the industrialized world... We couldn't do much worse!

Read Obama's Healthcare plan anyhow... It isn't as bad as you think...

Removing the bias against people who don't work for large companies (ie people who don't get the premium discount from being a part of a large risk pool) could do a lot to benefit the self employed.

[Witchiepoo]

Yes, I've seen that plan before. A few thoughts:

No way to stop malpractice insurance rates from going up without limiting awards in malpractice cases.

No way to force insurance carriers to cover pre-existing conditions without increasing insurance premiums.

If Obama/Biden are so gung ho about importing drugs and covering people under congress's own health care plan, why haven't they acted on this as senators already? I've heard those ideas from other people before, and they never seem to be put into place.

I'll answer my own question ... this is because the drug companies and insurance companies have huge lobbies, and they prevent this from happening. Did you know that most drug research is conducted by drug companies, but paid for with taxpayer dollars? Most people don't.

We have socialized medicine already, and the people benefitting are the corporations.

Personally, I'd eliminate health insurance coverage altogether, and let people pay out of pocket for their own medical expenses. For poor people who can't afford it, give them cash instead of Medicare/Medical coverage, and watch how wasteful spending goes down. It's a lot easier for patients to keep taking meds that are "free," instead of making lifestyle choices that prevent them from having these problems in the first place.

So I guess what I'm saying is that, like most things Obama, this is a Utopian vision with no basis in reality.

[scotths]

No way to stop malpractice insurance rates from going up without limiting awards in malpractice cases.

Agreed... Perhaps this needs to be done...

No way to force insurance carriers to cover pre-existing conditions without increasing insurance premiums.

I would disagree here... Right now someone with a preexisting condition will eventually get treatment for it under a plan at a large company. If insurance companies are able to provide good rates to companies who provide a large risk pool of healthy and sick people, they should be able to do a similar thing if we broaden the risk pool to equal the population of the country. Other countries are able to have medical care available to all, why can't we?

If Obama/Biden are so gung ho about importing drugs and covering people under congress's own health care plan, why haven't they acted on this as senators already? I've heard those ideas from other people before, and they never seem to be put into place.

Bush vetoed a modest increase in children's health care. What would have happened if the democrats in congress tried to pass this?

I'll answer my own question ... this is because the drug companies and insurance companies have huge lobbies, and they prevent this from happening. Did you know that most drug research is conducted by drug companies, but paid for with taxpayer dollars? Most people don't.

I'm voting for a candidate who raised large amounts of money in the form of small donations from people across the country. A candidate who promises to conduct more of the government business in public and minimize the impact of lobbyists... and I believe him! Why? Because at the state and federal level he spearheaded efforts to reduce the influence of lobbyists and make the operation and spending of the government public! As his funds came from the American people he will be beholden to them, and in order to receive similar funding in the future he will have to enact that which he has promised.

Personally, I'd eliminate health insurance coverage altogether, and let people pay out of pocket for their own medical expenses. For poor people who can't afford it, give them cash instead of Medicare/Medical coverage, and watch how wasteful spending goes down. It's a lot easier for patients to keep taking meds that are "free," instead of making lifestyle choices that prevent them from having these problems in the first place.

Lifestyle choices are only a part of the problem. Did we not have health problems before people began making bad lifestyle choices? In order to improve lifestyle choices we could encourage people do see a nutritionist if they are over weight and to see their Doctor for short office visits regularly rather than waiting for an emergency room crisis. The invisible hand of the market will have no incentive to take care of sick people... Easier for them to die off and be replaced with new vibrant young people! Is that the world in which you want to live?

Again I reiterate my point, if other countries are able to take care of their sick people, why can't we?

[Witchiepoo]

You do realize that other countries severely restrict which medical services are covered and which aren't ... don't you?

[The Grey Badger]

As a matter of fact, "Quit overeating" isn't as basic as it seems. I finally ended up going back to Weight Watchers just to learn how to implement a program of healthy eating in detail, and I'm literate, educated, and not really all that stupid, though not very practical. It's not just a matter of cutting back on the Twinkies. It's such things as "No, those healthy-seeming canned vegetables are full of high fructose corn syrup; better to use frozen." Or, "did you realize that the portion you're served is actually 2 1/2 portions?" Because of the massive inflation of serving size that many younger people hardly even notice!

Then if your main resource for food is convenience stores and take-out joints - check out "Niclked and Dimed" for (among other things) the difficulty of eating healthy food when working minimum wage, especially if you can eat what your employer sells at a discount and have half an hour to do it in ....you're shafted without the immensely detailed knowledge WW has collected. Or other such groups.

Because a lot of the food on the market is not healthy and is served in portions fit for lumberjacks.

Pat, now down to 150# and still working at it - and people tell me I eat very little.