Congress to Eliminate 401(k) Tax Benefits ... or Worse?

Kris Dunn (the HR Capitalist) and Mike Haberman (HR Observations) have important posts up alerting us to plans under consideration by Congress for 401(k) plans.

From the Capitalist post:

History has a way of showing that whenever the Democrats or the Republicans hold both houses and the White House, over-reaching the mandate given by the people is usually right around the corner.

For example, would you believe that eliminating the 401k Tax Benefit for employees is under consideration in the newly blue Washington?

Kris provides a helpful link to the Philadelphia Bulletin which discusses in detail the plan that could eliminate most of the $80 billion in annual tax breaks that investors (read: your employees) receive by placing their money in the $3 trillion 401(k) system - and walks us through the implications for individual workers.

It could get worse, though.  In his post at HR Observations, Mike provides a link to an article on the Carolina Journal online, which which alerts us to hearings in the U.S. House which have been held to discuss possible avenues to "confiscate workers' personal retirement accounts, including 401(k)s and IRAs, and convert them to accounts managed by the Social Security Administration."

HR and reward professionals: This has far-reaching implications for employers - please be sure that you are paying attention.

 

Comments

[Nancy]

To put our future financial situation in the hands of the government is disastrous. When you rememer that congress doesn't pay into social security or 401K's; they get their salaries for life; it's no skin off their back to tax you.

Welcome in the new era of socialism.

[eckman]

Here are five reasons why this idea is incredibly bad:
1. People will get out of the market at a low point - buying high and selling low is not the way to a sound retirement.
2. A 3% guaranteed rate after inflation will not keep up with the historical return for stocks, esp. after reinvested dividends.
3. Higher taxes for those who make more - nuff said.
4. This is a money grab for the government. They can take my money now, spend it, pay me out in 30 years when I retire, and tax me more to pay for it.
5. Lower demand for stocks as government takes the money will reduce the long term return on those stocks.

[Diane Aull]

How misleading! And how sad that you and Mike Haberman have both apparently been suckered in by deliberately inflammatory rhetoric from The Carolina Journal, a deeply partisan bird-cage liner I am ashamed to admit is published in the same state in which I live.

The purpose of the hearings is NOT "to discuss possible avenues to confiscate workers' personal retirement accounts." According to the chairman of the committee holding the hearings (Rep. George Miller, D-Calif.) the purpose of the committee -- and the hearings -- is to "strengthen and protect Americans' 401(k)s, pensions, and other retirement plans."

Strengthen. Protect. Not "confiscate."

Now, it's true -- one of many ideas being discussed as part of these hearings is the idea of rolling our current 401(k) accounts into government sponsored accounts. This was a proposal from Teresa Ghilarducci, a professor at the New School for Social Research. But she's not even a politician, much less a someone in a position to pass laws or set policy. She's just one person floating an idea.

See, this is what happens in a free society. Ideas get proposed and discussed. Sometimes they're good ideas, sometimes they're not. Sometimes they get implemented, sometimes they don't. Your side's ideas aren't always right. Neither are the other guys'. Sometimes you're both right. Sometimes you're both wrong.

But we have a better chance of finding the right solution if we are open to a variety of ideas. And being able to discuss and weigh alternatives in an open-minded, thoughtful and non-ideologically-hidebound way is a vital component of the process.

The kind of deliberately inflammatory language and alarmist propaganda exemplified by that Carolina Journal article is reprehensible and counterproductive. Frankly, it's the kind of thing I expect from mindless reactionaries who are more concerned with maintaining "ideological purity" than with actually solving the serious and difficult problems the nation faces today.

But this sort of irrational fear-mongering is not what I expect -- nor what the nation deserves -- from thoughtful and intelligent conservatives. At least, not from those who want to be taken seriously.

Shame on you.

[Ann Bares]

Nancy and Eckman:

Thanks for sharing your thoughts and concerns here.

Diane:

Thank you for taking the time to read and comment on my blog post. A few thoughts back to you.

You feel it is misleading to call attention to these hearings and the nature of the discussion being had; I believe it is a discussion that people in my profession need to pay attention to and follow, and that is the purpose of my posting on the topic.

You would have us focus solely on the stated purpose of the hearings, to "strenthen and protect"; I feel my interests (and those of others) are best served by keeping a cautious and skeptical eye on anything the government tells me it is pursuing for my benefit.

When Argentinian President Cristina Kirchner recently took the step of seizing the assets of her country's entire private pension system (see WSJ article http://online.wsj.com/article/SB122567336191591913.html ), she also described her action as one of "protecting citizens from the risk of the market". Forgive me if I take such claims with a small grain of salt.

I agree on the value of open discussion of ideas - that is one of the reasons that those of us who make the investment in producing a blog on a topic that is important to us do what we do. Do you make a similar investment in creating a forum for discussion, Diane? On my blog, I am free to draw attention to discussions, trends and ideas that I feel warrant a closer look, and I am free to use the language of other - even if you find it "inflammatory" - to illustrate my concern about them. I am also free to publish - or not - the thoughts and opinions of those who disagree with me, even when they fail to do so in a very cordial manner, as I have chosen to do with your comments.

I find it interesting that you so strongly emphasize your preference for "open-minded and thoughtful" discussion and your abhorence of "deliberately inflammatory language", while at the same time your comments here are laden with sarcasm and peppered with phrases like "suckered in", "mindless reactionaries" and "Shame on you." Might it be time for a closer look in the mirror, Diane?

Some of the best conversations on this blog, and those I've learned the most from, have been with people who disagreed with me and were able to do so in the "thoughtful and intelligent" manner you claim to value. I hope you'll read and return when you are ready to engage at this level.