House Education and Labor Committee Chairman George Miller, D-Calif., and Rep. Jim McDermott, D-Wash., 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.I have seen my 401(k) plan hit just as hard as many other people, but there's no way that I'm going to get more money by giving it to the federal government to invest than if I invested it myself.
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 Mr. 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 Ms. 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% 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% a year, adjusted for inflation.
The idea proffered by the Democrats would eliminate the tax breaks enjoyed under 401(k) retirement tax plans. Employees often have company matches on income put into the funds (dollar for dollar up to 4% or 50% of contribution up to 6%, etc.). All that would go by the wayside, and people investing for retirement would be forced to contribute to this new scheme.
It's curious that no one was complaining much about tremendous growth of 401(k) assets when the stock market was doing gangbusters. Now, that it's in a period of decline, we need to torch the same system? Hardly.
It's a recipe for disaster.