All your 401Ks are belong to us...

[Gowen]

Shamelessly ripped off from fatwallet finance forum.

Granted this is only a proposal, but it's still scary.

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081007/REG/810079894

Looks like 401k deductions - and possibly existing funds are _potentially_ on the chopping block. Guess the government doesn't have enough problems - they're looking to get into the universal pension game.

A wide range of sweeping changes to the 401(k) system were proposed Tuesday at a hearing on how the market crisis has devastated retirement savings plans.

Chief among them was eliminating $80 billion in tax savings for higher-income people enrolled in 401(k) retirement savings plans.

This was suggested by the chairman of the House Committee on Education and Labor.

“With respect to the 401(k), it appears to be a plan that is not really well-devised for the changes in the market,” Rep. George Miller, D-Calif., said.

“We’ve invested $80 billion into subsidizing this activity,” he said, referring to tax breaks allowed for 401(k) contributions and savings.

With savings rates going down, “what do we have to start to think about in Congress of whether or not we want to continue and invest that $80 billion for a policy that is not generating what we … say it should?” Mr. Miller said.

Congress should let workers trade their 401(k) assets for guaranteed retirement accounts made up of government bonds, suggested Teresa Ghilarducci, an economics professor at The New School for Social Research in New York.

When workers collected Social Security, the guaranteed retirement account would pay an inflation-adjusted annuity under her plan.

“The way the government now encourages 401(k) plans is to spend $80 billion in tax breaks,” which goes to the highest-income earners, Ms. Ghilarducci said.

That simply results in transferring money from taxed savings accounts to untaxed accounts, she said.

“If we implement automatic [individual retirement accounts] or if we expand the 401(k) system, all we’re doing is adding to this inefficiency,” Ms. Ghilarducci said.

Rep. Robert Andrews, D-N.J., raised the issue of which investment advisers are allowed to offer workers investment advice.

The Department of Labor is considering “loopholes” that would allow advisers to offer “conflicted investment advice if the advisers work for subsidiaries of financial services companies that sell the investments,” he said.

With American workers facing $2 trillion in losses from retirement plans over the past year and Democrats expected to gain seats in the House and the Senate, actions being contemplated by the committee are an important harbinger of what could come out of Congress next year.


http://www.house.gov/ed_workforce/testimony/2008-10-07-TeresaGhilarducci.pdf

[charby]

Does anyone elected to office every look past one week in the future. For crying out loud.

You don't invest in a 401k to retire in one week later. You invest over time, knowing that there will be ups and downs the market. You also need to diversify so you can retire when you want to. You should also be switching over to bonds and guaranteed annuities the closer you get to retirement, lessen the risk on the nest egg you have hopefully built your entire working career.

[41magsnub]

I do not consider myself "higher income" making basically $50K and think the 401K system is pretty slick.  sure I lost money in the recent problems but over the long haul it is a great deal.  by that logic shouldn't IRA's be on the chopping block as well?

[lupinus]

I love my 401k (profit sharing)

I get a wide variety of funds to invest in and it's easy to move funds around so I can insulate myself in times like this and get a bit more aggressive in a good market.  I also get a guaranteed two dollars for every one I invest from my employer, and since it's profit sharing likely more.  Average for the last decade has been a little over three bucks.

Personally, I'd prefer the government leave it the hell alone.

[RaspberrySurprise]

“We’ve invested $80 billion into subsidizing this activity,” he said, referring to tax breaks allowed for 401(k) contributions and savings.

Dear government monkey, not taking money from people is not an investment, it's not taking money from them.

[Bigjake]

If we get more than 5 min notice about a potential takeover, mark my words, I'll dump the whole bloody portfollio, take the tax penalty, and invest whatever is left in good things from Ronnie Barrett's fine inventory.

[AZRedhawk44]

I could smell this coming in the 90's when I first learned of pre-tax IRA contributions and 401(k) accounts.

I have a very small 401(k) from the last 8 years of working, but I have kept most of my meager money to call my own in things that I truly own.

If we get more than 5 min notice about a potential takeover, mark my words, I'll dump the whole bloody portfollio, take the tax penalty, and invest whatever is left in good things from Ronnie Barrett's fine inventory.

^^ Here is wisdom.  Not necessarily the guns, but dumping it before the @$$hats take it.

But... hey... the middle class will get a $200 a year tax cut!  That makes it all better, right?

[Gowen]

If we get more than 5 min notice about a potential takeover, mark my words, I'll dump the whole bloody portfollio, take the tax penalty, and invest whatever is left in good things from Ronnie Barrett's fine inventory.

you and me both my friend.  I am half ready to stop contributing to mine till I see how this plays out.  We would just sock the money away for a while.

[Marvin Dao]

Does anyone elected to office every look past one week in the future. For crying out loud.

Oh, they see pretty far out. My bet is that these "guaranteed retirement accounts" will be looted to fund the Social Security shortfall, just as Social Security funds are diverted to the general budget. The government might even be able to push the Social Security collapse horizon out a decade or so with this. The emphasis on the poor state of the market is just to hide what they're doing from us.

All I know is that retirement's going to be a hell of a rough time for 20-somethings that won't have pensions, Social Security, or advantageously taxed investment accounts to rely on. Throw in the higher capital gains taxes that the next administration will bring and things look even less rosy.

[makattak]

Oh, they see pretty far out. My bet is that these "guaranteed retirement accounts" will be looted to fund the Social Security shortfall, just as Social Security funds are diverted to the general budget. The government might even be able to push the Social Security collapse horizon out a decade or so with this. The emphasis on the poor state of the market is just to hide what they're doing from us.

All I know is that retirement's going to be a hell of a rough time for 20-somethings that won't have pensions, Social Security, or advantageously taxed investment accounts to rely on. Throw in the higher capital gains taxes that the next administration will bring and things look even less rosy.

I'm not a 20 something, but I was a year ago.

My wife is a 20 something.

Looks like my retirement plan will have to be buy a ranch and work there till I die. (Course I have to save a LONG time before this will be possible)

At least the government would have to be overt about taking the product of my labor at that point.

[Manedwolf]

I'm not a 20 something, but I was a year ago.

My wife is a 20 something.

Looks like my retirement plan will have to be buy a ranch and work there till I die. (Course I have to save a LONG time before this will be possible)

At least the government would have to be overt about taking the product of my labor at that point.

Your property taxes will be raised until you can no longer afford your land, or it will be seized via eminent domain for a pointless public works project.

[makattak]

Your property taxes will be raised until you can no longer afford your land, or it will be seized via eminent domain for a pointless public works project.

...

DANG IT...

You're right.

[Manedwolf]

...

DANG IT...

You're right.

Trust me, I've watched it happen here under with increasing speed under the Democratic majority.

1. Farm has been in family for hundreds of years, farmhouse atop hill, sweep of rolling hills and fields to the horizon.
2. Property taxes raised and raised and raised. Even a "view tax"...which nailed the farmhouse for being atop the hill with a nice view.
3. Family has to sell farm, can no longer afford to hold the land due to tax burden vs. any income.
4. Developers, usually from Mass, buy up land, cover with zero-lotline McMansions and Big Box.

[Uncle Bubba]

Trust me, I've watched it happen here under with increasing speed under the Democratic majority.

1. Farm has been in family for hundreds of years, farmhouse atop hill, sweep of rolling hills and fields to the horizon.
2. Property taxes raised and raised and raised. Even a "view tax"...which nailed the farmhouse for being atop the hill with a nice view.
3. Family has to sell farm, can no longer afford to hold the land due to tax burden vs. any income.
4. Developers, usually from Mass, buy up land, cover with zero-lotline McMansions and Big Box.

A '"view tax..."'!? Sheesh, I'd say I've heard it all now, but I have a feeling there'll be worse to come.

[HankB]

Your property taxes will be raised until you can no longer afford your land, or it will be seized via eminent domain for a pointless public works project.

And the liberal's definition of "public works" includes things like condos and strip malls built by developers that have made significant contributions to the "correct" people.

[Manedwolf]

And the liberal's definition of "public works" includes things like condos and strip malls built by developers that have made significant contributions to the "correct" people.

Don't forget Section 8 housing. The new idea seems to be to use public funding to plop it in the middle of upscale areas, to make things more "fair". I've seen more than one director of such who was a militant "F the rich, this should be their problem too, we'll put it in their neighborhoods" leftist.

[Tallpine]

Is it a "view tax" or a "field of fire" tax ?   

[WeedWhacker]

If we get more than 5 min notice about a potential takeover, mark my words, I'll dump the whole bloody portfollio, take the tax penalty, and invest whatever is left in good things from Ronnie Barrett's fine inventory.

The discussion in question has served me as my notice.

I just cashed out my 401k; thankfully, it missed the stock market crash as I'd moved everything into bonds at the beginning of '08...

It's all going into tools and property, stuff which isn't as easy for the gov't to steal through inflation, etc.

[Gowen]

Looks like my retirement plan will have to be buy a ranch and work there till I die. (Course I have to save a LONG time before this will be possible)

The one problem is you will have to keep the money in a off shore bank account, least you show to have too much money for the government.  Either that or bury it in the back yard.

[Bigjake]

I'm seriously thinking about taking my lumps now and dumping ALL of my stock portfolio and 401k, and just putting whatever cash I have left against my home loan.

  Gotta talk to my stock guy, but I can't see how that would be a bad thing at this point. 

[Waitone]

Congress will end up putting its hands all over tax deferred retirement saving.  Deal with it.  Now what do you suppose will happen went the accounts are finally examined and it is disclosed the retirement accounts are hollow due to extensive use of exotic investment vehicles which are just now beginning to totter.

[RoadKingLarry]

The one problem is you will have to keep the money in a off shore bank account, least you show to have too much money for the government.  Either that or bury it in the back yard.

"They" are looking at that as well.

[neviander]

The idea of putting a huge amount of money into the stock market, 401k or no, never appealed to me.  It's a virtual number backed by a virtual market, controlled by a government that virtually cares about us...

I'd rather put my money into something tangible, like gold, or firearms :D  I realize firearms don't always hold their value, but they're a heckuva lot more valuble than a piece of paper if the *expletive deleted*it ever hits the fan; and gold has been liquid since it was created.

[Sindawe]

Maybe just journalistic license, but this article mentionons confiscating 401(k)s and IRAs instead of just letting the rightful owner trade them in for government backed accounts. 

Carolina Journal Exclusives

Dems Target Private Retirement Accounts

Democratic leaders in the U.S. House discuss confiscating 401(k)s, IRAs

By Karen McMahan

November 04, 2008

RALEIGH — Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers’ personal retirement accounts — including 401(k)s and IRAs — and convert them to accounts managed by the Social Security Administration.

Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.

The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers’ retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.

Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, in prepared remarks for the hearing on “The Impact of the Financial Crisis on Workers’ Retirement Security,” blamed Wall Street for the financial crisis and said his committee will “strengthen and protect Americans’ 401(k)s, pensions, and other retirement plans” and the “Democratic Congress will continue to conduct this much-needed oversight on behalf of the American people.”

Currently, 401(k) plans allow Americans to invest pretax money and their employers match up to a defined percentage, which not only increases workers’ retirement savings but also reduces their annual income tax. The balances are fully inheritable, subject to income tax, meaning workers pass on their wealth to their heirs, unlike Social Security. Even when they leave an employer and go to one that doesn’t offer a 401(k) or pension, workers can transfer their balances to a qualified IRA.

Mandating Equality

Ghilarducci’s plan first appeared in a paper for the Economic Policy Institute: Agenda for Shared Prosperity on Nov. 20, 2007, in which she said GRAs will rescue the flawed American retirement income system (www.sharedprosperity.org/bp204/bp204.pdf).

The current retirement system, Ghilarducci said, “exacerbates income and wealth inequalities” because tax breaks for voluntary retirement accounts are “skewed to the wealthy because it is easier for them to save, and because they receive bigger tax breaks when they do.”

Lauding GRAs as a way to effectively increase retirement savings, Ghilarducci wrote that savings incentives are unequal for rich and poor families because tax deferrals “provide a much larger ‘carrot’ to wealthy families than to middle-class families — and none whatsoever for families too poor to owe taxes.”

GRAs would guarantee a fixed 3 percent annual rate of return, although later in her article Ghilarducci explained that participants would not “earn a 3% real return in perpetuity.” In place of tax breaks workers now receive for contributions and thus a lower tax rate, workers would receive $600 annually from the government, inflation-adjusted. For low-income workers whose annual contributions are less than $600, the government would deposit whatever amount it would take to equal the minimum $600 for all participants.

In a radio interview with Kirby Wilbur in Seattle on Oct. 27, 2008, Ghilarducci explained that her proposal doesn’t eliminate the tax breaks, rather, “I’m just rearranging the tax breaks that are available now for 401(k)s and spreading — spreading the wealth.”

All workers would have 5 percent of their annual pay deducted from their paychecks and deposited to the GRA. They would still be paying Social Security and Medicare taxes, as would the employers. The GRA contribution would be shared equally by the worker and the employee. Employers no longer would be able to write off their contributions. Any capital gains would be taxable year-on-year.

Analysts point to another disturbing part of the plan. With a GRA, workers could bequeath only half of their account balances to their heirs, unlike full balances from existing 401(k) and IRA accounts. For workers who die after retiring, they could bequeath just their own contributions plus the interest but minus any benefits received and minus the employer contributions.

Another justification for Ghilarducci’s plan is to eliminate investment risk. In her testimony, Ghilarducci said, “humans often lack the foresight, discipline, and investing skills required to sustain a savings plan.” She cited the 2004 HSBC global survey on the Future of Retirement, in which she claimed that “a third of Americans wanted the government to force them to save more for retirement.”

What the survey actually reported was that 33 percent of Americans wanted the government to “enforce additional private savings,” a vastly different meaning than mandatory government-run savings. Of the four potential sources of retirement support, which were government, employer, family, and self, the majority of Americans said “self” was the most important contributor, followed by “government.” When broken out by family income, low-income U.S. households said the “government” was the most important retirement support, whereas high-income families ranked “government” last and “self” first (www.hsbc.com/retirement).

On Oct. 22, The Wall Street Journal reported that the Argentinean government had seized all private pension and retirement accounts to fund government programs and to address a ballooning deficit. Fearing an economic collapse, foreign investors quickly pulled out, forcing the Argentinean stock market to shut down several times. More than 10 years ago, nationalization of private savings sent Argentina’s economy into a long-term downward spiral.

Income and Wealth Redistribution

The majority of witness testimony during recent hearings before the House Committee on Education and Labor showed that congressional Democrats intend to address income and wealth inequality through redistribution.

On July 31, 2008, Robert Greenstein, executive director of the Center on Budget and Policy Priorities, testified before the subcommittee on workforce protections that “from the standpoint of equal treatment of people with different incomes, there is a fundamental flaw” in tax code incentives because they are “provided in the form of deductions, exemptions, and exclusions rather than in the form of refundable tax credits.”

Even people who don’t pay taxes should get money from the government, paid for by higher-income Americans, he said. “There is no obvious reason why lower-income taxpayers or people who do not file income taxes should get smaller incentives (or no tax incentives at all),” Greenstein said.

“Moving to refundable tax credits for promoting socially worthwhile activities would be an important step toward enhancing progressivity in the tax code in a way that would improve economic efficiency and performance at the same time,” Greenstein said, and “reducing barriers to labor organizing, preserving the real value of the minimum wage, and the other workforce security concerns . . . would contribute to an economy with less glaring and sharply widening inequality.”

When asked whether committee members seriously were considering Ghilarducci’s proposal for GSAs, Aaron Albright, press secretary for the Committee on Education and Labor, said Miller and other members were listening to all ideas.

Miller’s biggest priority has been on legislation aimed at greater transparency in 401(k)s and other retirement plan administration, specifically regarding fees, Albright said, and he sent a link to a Fox News interview of Miller on Oct. 24, 2008, to show that the congressman had not made a decision.

After repeated questions asked by Neil Cavuto of Fox News, Miller said he would not be in favor of “killing the 401(k)” or of “killing the tax advantages for 401(k)s.”

Arguing against liberal prescriptions, William Beach, director of the Center for Data Analysis at the Heritage Foundation, testified on Oct. 24 that the “roots of the current crisis are firmly planted in public policy mistakes” by the Federal Reserve and Congress. He cautioned Congress against raising taxes, increasing burdensome regulations, or withdrawing from international product or capital markets. “Congress can ill afford to repeat the awesome errors of its predecessor in the early days of the Great Depression,” Beach said.

Instead, Beach said, Congress could best address the financial crisis by making the tax reductions of 2001 and 2003 permanent, stopping dependence on demand-side stimulus, lowering the corporate profits tax, and reducing or eliminating taxes on capital gains and dividends.

Testifying before the same committee in early October, Jerry Bramlett, president and CEO of BenefitStreet, Inc., an independent 401(k) plan administrator, said one of the best ways to ensure retirement security would be to have the U.S. Department of Labor develop educational materials for workers so they could make better investment decisions, not exchange equity investments in retirement accounts for Treasury bills, as proposed in the GSAs.

Should Sen. Barack Obama win the presidency, congressional Democrats might have stronger support for their “spreading the wealth” agenda. On Oct. 27, the American Thinker posted a video of an interview with Obama on public radio station WBEZ-FM from 2001.

In the interview, Obama said, “The Supreme Court never ventured into the issues of redistribution of wealth, and of more basic issues such as political and economic justice in society.” The Constitution says only what “the states can’t do to you. Says what the Federal government can’t do to you,” and Obama added that the Warren Court wasn’t that radical.

Although in 2001 Obama said he was not “optimistic about bringing major redistributive change through the courts,” as president, he would likely have the opportunity to appoint one or more Supreme Court justices.

“The real tragedy of the civil rights movement was, um, because the civil rights movement became so court focused that I think there was a tendency to lose track of the political and community organizing and activities on the ground that are able to put together the actual coalition of powers through which you bring about redistributive change,” Obama said.

Source: http://www.carolinajournal.com/articles/display_story.html?id=5081

[RocketMan]

Our country decided on Nov.4 that it desired socialism over capitalism.  Why is gov't discussing the taking of our 401(k)s a surprise to anyone?
All of the folks that voted for socialism are now going to get it, with both barrels.  I don't think it's going to turn out quite the way they thought it would, however, when they see the gov't coming to redistribute everyone's wealth, and eventually in all its forms.
How long before savings accounts that hold more than $xxx.xx are confiscated, because to have more than that amount is unfair?  How long before the gov't starts discussing taking operating control, or the outright siezure, of real property so it can better benefit those with greater "need"?
Is this going to be the wake-up call that swings things back the other way in two years?  One can hope, I suppose.