hotbrownsauce
11-11-2008, 09:31 PM
http://perotcharts.com/2008/11/save_your_401k/
Overhauling the 401(k) System
During the week of October 6th, Theresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York testified before the House Education and Labor Committee chaired by Rep. George Miller, D-California and the House Ways and Means Committee’s Subcommittee on Income Security and Family Support chaired by Rep. Jim McDermott, D-Washington. Components of the plan include the following:
* 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. This money would be invested in special government bonds that would accrue 3 percent per year. [PerotCharts question: Does this sound vaguely similar to the current Social Security Trust Fund?]
* 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.” [PerotCharts note: We already have these types of accounts; they’re called brokerage accounts.]
* To make the plan more palatable, Ms. Ghilarducci offered an incentive, “Short term I propose…that Congress allow workers to swap out their 401(k) assets, perhaps at August level for a guaranteed retirement account.” [PerotCharts note: The idea here is to induce holders of 401(k) plans to turn over their plan assets to the government in exchange for restoring the balance in their 401(k) plans prior to the stock market collapse in September and October.]
* The plan would allow workers to pass on only half of their account balances to their heirs; presumably the government would keep the remaining half. [Currently, 401(k) balances are fully inheritable.]
Observations by PerotCharts.com:
* Many people contribute to their 401(k) plans because their employers match their contributions. Eliminating the tax break for 401(k)s would make the matching portion taxable to the recipient and subject to additional FICA taxes payable by both the employer and the employee.
* Eliminating tax breaks for 401(k) plans pushes individuals into higher tax brackets even though they have no additional disposable income.
* Apparently, there was no mention as to the rate at which the government would pay your money back to you when you reach retirement age.
* Although the chairman of the House Education and Labor Committee stopped short of endorsing the plan, it was reported that he was clearly against continuing tax breaks for 401(k)s as they currently exist.
* No mention was made of the fact that, under the proposed plan, the government would need to liquidate the stock portfolios of the former 401(k) holders. Neither was it explained how the market could absorb $3 trillion of securities currently held in 401(k) plans.
* There is no indication that the new administration favors this proposal. It is in discussion stages of the two committees mentioned above.
Overhauling the 401(k) System
During the week of October 6th, Theresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York testified before the House Education and Labor Committee chaired by Rep. George Miller, D-California and the House Ways and Means Committee’s Subcommittee on Income Security and Family Support chaired by Rep. Jim McDermott, D-Washington. Components of the plan include the following:
* 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. This money would be invested in special government bonds that would accrue 3 percent per year. [PerotCharts question: Does this sound vaguely similar to the current Social Security Trust Fund?]
* 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.” [PerotCharts note: We already have these types of accounts; they’re called brokerage accounts.]
* To make the plan more palatable, Ms. Ghilarducci offered an incentive, “Short term I propose…that Congress allow workers to swap out their 401(k) assets, perhaps at August level for a guaranteed retirement account.” [PerotCharts note: The idea here is to induce holders of 401(k) plans to turn over their plan assets to the government in exchange for restoring the balance in their 401(k) plans prior to the stock market collapse in September and October.]
* The plan would allow workers to pass on only half of their account balances to their heirs; presumably the government would keep the remaining half. [Currently, 401(k) balances are fully inheritable.]
Observations by PerotCharts.com:
* Many people contribute to their 401(k) plans because their employers match their contributions. Eliminating the tax break for 401(k)s would make the matching portion taxable to the recipient and subject to additional FICA taxes payable by both the employer and the employee.
* Eliminating tax breaks for 401(k) plans pushes individuals into higher tax brackets even though they have no additional disposable income.
* Apparently, there was no mention as to the rate at which the government would pay your money back to you when you reach retirement age.
* Although the chairman of the House Education and Labor Committee stopped short of endorsing the plan, it was reported that he was clearly against continuing tax breaks for 401(k)s as they currently exist.
* No mention was made of the fact that, under the proposed plan, the government would need to liquidate the stock portfolios of the former 401(k) holders. Neither was it explained how the market could absorb $3 trillion of securities currently held in 401(k) plans.
* There is no indication that the new administration favors this proposal. It is in discussion stages of the two committees mentioned above.