Abolishment of 401(k) Plans

[A Shot in the Dark]

I used to not think much about these kind of bulletins, etc.

Now, I begin to wonder if someday something like this will happen.

Please see the attached document.

House_Democrats_Contemplate...pdf

[Dave Baker]

Yes, when you consider the 'tax expenditures' from tax-free investment earnings in retirement trusts, and from employer-provided health insurance, you're looking at some real money on the table.

[JanetM]

Who was it who said "a few billion here, a few billion there, now you're talking real money"?

[GMK]

That would be Senator Everett Dirksen of Illinois.

[JanetM]

Thanks GMK. These days seems millions and billions aren't enough to get people worked up. Now it is trillions...............

[GBurns]

I think that it was Stephanie Miller (of Air America, I think) who said "Democrats usually find a way to snatch defeat from the jaws of victory".

[J Simmons]

I think that it was Stephanie Miller (of Air America, I think) who said "Democrats usually find a way to snatch defeat from the jaws of victory".

Point of clarification, George. Are you suggesting that an abrupt withdrawal of troops from Iraq by an Obama administration would snatch defeat from the jaws of victory or that the Obama campaign might yet find a way to lose the presidential election?

[GBurns]

I was not referring to the Obama campaign in particular, I was referring to the General Election.

On November 4, we will be having a General Election. The election of a new President is only 1 of the many items on the ballot. Of great importance is the election of many Members of Congress. The attaining of a veto proof majoritycould be as significant as the party affiliation of whomever is elected President.

My comment was general in nature and directed at the overall election, which according to many pollsters favors the members of the Democratic Party. They might very well find a way to reverse the polls.

While you did not attribute anything to the Obama campaign I must point out that I have not heard of Obama or his campaign suggesting "an abrupt withdrawal".

I also thought that victory was already accomplished. The stated objective of the War for Iraqi Freedom was the overthrow of the Saddam regime at that was already declared "Mission Accomplished". I do not have at hand the name of the subsequent operations but What we are currently doing is reconstruction which has no victory just completion.

[Guest mjb]

I used to not think much about these kind of bulletins, etc.

Now, I begin to wonder if someday something like this will happen.

Please see the attached document.

LOL.

Does anyone seriously think that US taxpayers will stand for having the federal government take an additional 5% out of their already depleted paychecks on an after tax basis in addition to the 7.65% for FICA (for a grand total of 12.65%) with the promise of paying them an undefined amount based on a below market rate of return many years in the future? What will prevent a future Congress from scaling back or eliminating the benefits on a needs basis. Altogether, LOL again.

And where will this money go other then to the federal government which will issue more IOUs to be paid with increased taxes by future generations (the same as the treasury securities held by SS which will be redeemed in the next few years as boormers retire).

This is nothing more than a thinly veiled proposal by Democrats to obtain additional funds to pay for social welfare programs in the next administration such as national health care that cannot be funded through the income tax increases that will be needed to reduce the deficit.

LOL one more time.

[GMK]

1985 - A brief report in The Wall Street Journal, Tuesday, September 10, 1985

"The Treasury Department's move last week to kill the employee-savings plans known as 401(k)s, in which workers save by cutting pay and deferring taxes, prompts a backlash from employer groups. Corporate lobbyists scheduled emergency meetings last week to intensify rescue efforts. Employers who had waged a mild fight against Treasury's prior move to limit the plans ready more aggressive lobbying efforts.

"Their goal is to save the plans in some form, hoping that the rules can be liberalized later. Ways and Means Committee Democrats, such as Oklahoma's Jones and Arkansas's Anthony openly praised the plans at a hearing last week. But strategists say the fate of 401(k)s depends on last-minute bargaining over other benefit issues."

[J Simmons]

Also, in October 1992, candidate Bill Clinton appeared on Nightline with Ted Koppel and said if elected he would have the cross-testing regulations revoked, as they permitted abuse of defined contribution plans by business owners. It was a surprise hearing a presidential candidate talking about the subject.

Years later towards the end of his administration, Treasury did revise those regs to require the gateway contributions. But cross-testing is yet alive and kicking.

[Guest mjb]

1985 - A brief report in The Wall Street Journal, Tuesday, September 10, 1985

"The Treasury Department's move last week to kill the employee-savings plans known as 401(k)s, in which workers save by cutting pay and deferring taxes, prompts a backlash from employer groups. Corporate lobbyists scheduled emergency meetings last week to intensify rescue efforts. Employers who had waged a mild fight against Treasury's prior move to limit the plans ready more aggressive lobbying efforts.

"Their goal is to save the plans in some form, hoping that the rules can be liberalized later. Ways and Means Committee Democrats, such as Oklahoma's Jones and Arkansas's Anthony openly praised the plans at a hearing last week. But strategists say the fate of 401(k)s depends on last-minute bargaining over other benefit issues."

The Treasury proposal was a bargainin chip to reduce the $30,000 maximum amount that employees could defer in a 401k plan at a time when the maximum tax rate on wages was 50%. The compromise was to reduce salary deferals to $7500 by enacting 402(g) and permitting COLA increases. The trade off for lower deferrals was a reduction of the maximum tax rate to 28%.

The difference between 1986 tax reform and now is that in 1986 most employees were covered by a defiend benefit plan while today less than 20% of all employees are covered by a DB plan making the 401k plan the primary retirement plan.

[Guest BruceC]

The difference between 1986 tax reform and now is that in 1986 most employees were covered by a defiend benefit plan while today less than 20% of all employees are covered by a DB plan making the 401k plan the primary retirement plan.

Hence, the case for the elimination of salary deferral retirement savings plans.

Now, I appreciate the argument that this proposal is merely a left-handed taxing strategy, and that unlike DCP's, the Govamit would control who got what retirement benefit in future years....(and this is indeed alarming)...but consider the following:

With DBP's, workers needed not worry about stock market gyrations, regular savings discipline or clever middlemen who manage to legally wiggle their way into the retirement savings industry, syphoning off billions for themselves...some of it legit but much of it unnecessary (front loads, 12b-1's, surrenders, excess trading, soft money, expensive MF's, M&E, etc, etc). It was up to the ER to manage the savings such that the clear benefit formula guaranteed (up to the annual maximum) the retirement benefit. But the current DCP system, although good for many of us, is likely going to be not so good for the mainstream workers, who don't know, as GG liked to say, 'Preferred stock from Livestock' This will likely translate into a high % of Americans living in mobile home estates in 20 years. I'm not saying DBPs are the answer...only that the current independent 'on your own' DCP system will do little to assure a comfortable retirement lifestyle for many.

BruceM

[GBurns]

BruceM

Has there ever been an issue on which the average person has ever made their choice for that which was best for them in the long term (big picture) rather than choosing based on "low-info", sound bites, advertising hype and alleged trend reports ?

That's how we got into this mess.