EYEING YOUR PENSION
October 29, 2008
If you have a 401(k) or equivalent retirement plan, you've probably seen your nest egg shrink considerably due to the current turmoil in the markets. Well, it could be worse, says the Wall Street Journal; some politicians are eyeing the end of the 401(k) as we know it!
The House Education and Labor Committee has heard a plan that contains elements that they are seriously considering, says James Taranto of the Wall Street Journal. The plan by Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, would fundamentally change tax-preferred savings plans:
- All workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government toward their retirement savings, 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.
- In addition, workers would be able to pass on only half of their account balances to their heirs; presumably the government would seize the remaining half.
- Further, the current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.
In the short term, Ghilarducci proposes that Congress allow workers to swap out their 401(k) assets for a guaranteed retirement account, but for one time only. Overall, Ghilarducci's proposal will dramatically limit everyone's ability to take risks and will greatly increase government control of American's retirement funds. It is by no means certain that Congress or a President Obama would embrace such a proposal, but this is a direction in which things may move, says the Journal.
Source: James Taranto, "Eyeing Your Pension," Wall Street Journal, October 23, 2008; based upon: Teresa Ghilarducci, "Guaranteed retirement accounts: Toward retirement income security," Economic Policy Institute, Briefing Paper, No. 204, November 20, 2007.
For Ghilarducci text:
Browse more articles on Tax and Spending Issues