Like your 401?
House Democrats have once again slipped up by allowing us a glimpse of the brave new world of Obamanomics and complete Democratic control of Congress.
House Democrats recently invited Teresa Ghilarducci, a professor at the New School of Social Research, to testify before a subcommittee on her idea to eliminate the preferential tax treatment of the popular retirement plans. In place of 401(k) plans, she would have workers transfer their dough into government-created "guaranteed retirement accounts" for every worker. The government would deposit $600 (inflation indexed) every year into the GRAs. Each worker would also have to save 5 percent of pay into the accounts, to which the government would pay a measly 3 percent return. Rep. Jim McDermott, a Democrat from Washington and chairman of the House Ways and Means Committee's Subcommittee on Income Security and Family Support, said that since "the savings rate isn't going up for the investment of $80 billion [in 401(k) tax breaks], 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."
On Oct. 7, they heard testimony from Teresa Ghilarducci, an economics professor from The New School for Social Research in New York. She proposed a radical, short-term fix, where 401(k) plans would be turned over to a guaranteed retirement account composed of government bonds earning a 3 percent annual return, adjusted for inflation.When workers begin collecting Social Security, the account would pay them an inflation-adjusted annuity, based on the accumulated funds. For example, a 55-year-old worker with $50,000 in a 401(k) account in August would swap out the $50,000 for a guarantee of $500 per month in retirement.Q: What about a long-term solution?A: Chilarducci proposed the creation of universal guaranteed retirement accounts in which the federal government invests $600 for every worker. Workers would put 5 percent of their pay in and the account would earn a guaranteed 3 percent rate of return, plus inflation. The cost of this plan would be offset by doing away with most tax breaks currently offered on 401(k) accounts, so the government wouldn't have to pay any more than it does now. The accounts would be safer and guarantee all workers an income during retirement.