House Democrats Contemplate Abolishing 401(k) Tax Breaks

[StrangeSox]

http://www.workforce.com/section/00/article/25/83/58.php

 

Their plan? Take even more of your money (5% annual) for a SS-like retirement program in which you have zero control. It makes me sad that people like this are in charge of making the laws for this country.

 

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 [email protected].

[NorthSideSox72]

No f***ing way. That is idiotic to say the least.

 

This is call/letter to the Congressman territory. This is just disastrous on all sorts of levels.

 

[southsider2k5]

Just f***ing brilliant.

[ChiSox_Sonix]

No f***ing way. That is idiotic to say the least.

 

This is call/letter to the Congressman territory. This is just disastrous on all sorts of levels.

 

 

^^^

 

 

[StrangeSox]

No f***ing way. That is idiotic to say the least.

 

This is call/letter to the Congressman territory. This is just disastrous on all sorts of levels.

 

I'm not kidding when I say it turned my stomach. It simply amazes me that this person has a job in the US Congress, and will probably continue to do so.

[Steve9347]

If that happens, f*** the world.

[southsider2k5]

In all seriousness, if they did that, we'd see the Dow Jones go to 5000. The amount of money that would stop going into the stock market would just be massive. The irony is the Dems would be destroying the retirements of the middle class. Instead of getting a 10% annual return like stocks have since 1925 on average. They would get a negative return on their tax dollars as the government wasted it before giving it back to them in 40 years. I can't even begin to explain how stupid this idea is.

[lostfan]

House Democrats are the weak link in the current government IMO. I'm pretty sure I'm voting for whatever Republican is running for my district (I think the incumbent is a Dem).

[NorthSideSox72]

House Democrats are the weak link in the current government IMO. I'm pretty sure I'm voting for whatever Republican is running for my district (I think the incumbent is a Dem).

I'm pinning my hopes on the thought that this idea isn't held in high regard among the Dem party higher-ups. This is just a lunatic idea from a few house reps who are hungry for more gov revenue. I hope. Then this can just die a quick death.

 

[StrangeSox]

I'm pinning my hopes on the thought that this idea isn't held in high regard among the Dem party higher-ups. This is just a lunatic idea from a few house reps who are hungry for more gov revenue. I hope. Then this can just die a quick death.

 

I tend to believe that this would never be supported by the party on the whole, but it just goes to show how incredibly naive/ stupid some people in our Congress are. There's only, what, 635 of them, and we still end up with people supporting ideas that are so horrible.

[Harry Chappas]

Wow are politicans stupid.

 

Does this mean there would be no more 401(K) and everything is then a Roth IRA type of contribution?

 

I really wish McCain would have choosen a better running mate.

[NorthSideSox72]

Wow are politicans stupid.

 

Does this mean there would be no more 401(K) and everything is then a Roth IRA type of contribution?

 

I really wish McCain would have choosen a better running mate.

As much as I dislike Obama's tax policy ideas, I think even he isn't so economically and politcally stupid as to support this type of move.

 

[StrangeSox]

Wow are politicans stupid.

 

Does this mean there would be no more 401(K) and everything is then a Roth IRA type of contribution?

 

I really wish McCain would have choosen a better running mate.

 

This isn't Obama's plan and I really, really doubt he'd support something this dumb.

 

There would still be 401(k)'s, there just wouldn't be any tax breaks on them, either going in or coming out. So it'd just be a glorified savings account.

[southsider2k5]

This isn't Obama's plan and I really, really doubt he'd support something this dumb.

 

There would still be 401(k)'s, there just wouldn't be any tax breaks on them, either going in or coming out. So it'd just be a glorified savings account.

 

This isn't just coming out of no where. The fact that it is being floated right now is what is interesting.

[Harry Chappas]

As much as I dislike Obama's tax policy ideas, I think even he isn't so economically and politcally stupid as to support this type of move.

 

I agree but if it garners enough support there must be an overriding ideology by the Dems that it would be benefical to pass this through. The fear of Dems controlling policy making ability and even having ideas like this scares the s*** out of me.

[StrangeSox]

This isn't just coming out of no where. The fact that it is being floated right now is what is interesting.

 

It's coming out of someone at the New School for Social Research in New York and a couple of morons in the House, not the Democratic party leadership.

[Texsox]

Out of stupid ideas comes teflon and post-it-notes. No harm in exploring crazy ideas to see what might be there. I noticed that there aren't too many household names attached anywhere.

[Balta1701]

I agree but if it garners enough support there must be an overriding ideology by the Dems that it would be benefical to pass this through. The fear of Dems controlling policy making ability and even having ideas like this scares the s*** out of me.

The Republicans have controlled policy for the last 8 years for the most part, and despite their official platform at one recent point calling for a return to the gold standard, that hasn't happened either.

[NorthSideSox72]

The Republicans have controlled policy for the last 8 years for the most part, and despite their official platform at one recent point calling for a return to the gold standard, that hasn't happened either.

So, as the only person posting in this thread so far that I'd call "liberal"... what are your feelings on this 401k issue?

 

[southsider2k5]

I agree but if it garners enough support there must be an overriding ideology by the Dems that it would be benefical to pass this through. The fear of Dems controlling policy making ability and even having ideas like this scares the s*** out of me.

 

I know the popular thing is to accuse the GOP of using the tactics of fear in their campaigning, but all I have seen from the Democrats in this election is using the fear of business and class warfare. The fact that ANYONE in Congress thinks this is a good idea is scary.

[Soxbadger]

Well just because some one is in congress doesnt mean they understand whats going on.

 

Im suspicious of this idea because it just doesnt seem to make sense at all, so in that regard I really have a hard time believing that its up for serious consideration.

 

 

[southsider2k5]

Well just because some one is in congress doesnt mean they understand whats going on.

 

Im suspicious of this idea because it just doesnt seem to make sense at all, so in that regard I really have a hard time believing that its up for serious consideration.

 

Yes, but they have the power to try to make it law. THAT is what is scary.

[Soxbadger]

Thats what is scary about a Democracy, Republic or any govt where the people elect leaders.

 

Some elections are won due to "popularity contests" instead of qualifications.

 

But the hope is by creating such a big unwieldy govt that only the most popular laws that appeal to all walks of life will pass, where as the fringe ones never pass.

 

I believe thats Madison and pluralism for all of those who are keeping count.

 

 

[Balta1701]

So, as the only person posting in this thread so far that I'd call "liberal"... what are your feelings on this 401k issue?

I can see the motivation for a mechanism for enforcing savings...but as long as Social Security exists, giving people encouragements for additional retirement savings while at the same time taking advantage of the equity premium you get in any timespan when there is not a Bush in the White House seems like an appropriate strategy.

 

If you want to privatize Social Security as has been repeatedly proposed, then this would make more sense.

[mr_genius]

I hope this proposal gets shot down, soon.