401(k)s Under Attack!

By Kevin Depew  NOV 10, 2008 12:15 PM

Positive social mood gave rise to self-directed investment plan; negative social mood may kill it.


Late last week, the following news story began circulating widely on the Internet and has begun to take on an epic, hysterical new life:

Dems Target Private Retirement Accounts

The story's scary and misleading headline aside, there are some facts to consider:

hearing was held on October 7 by Education and Labor Committee Chairman George Miller (D-CA) to look into the impact of the financial crisis on workers' retirement security. Please read Congressman Miller's opening remarks, because there is no mention in them whatsoever about confiscating retirement assets. Instead Congressman Miller mentioned in his remarks, and has long been an outspoken advocate of, 401k plan FEE reform, something those on Wall Street certainly have no small stake in, and a revenue stream that will be increasingly important to them.

So, where did this idea of 401k asset confiscation come from? Supposedly from Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, one of five witnesses who testified at the hearing. However, also among those testifying was Jerry Bramlett, CEO of BenefitStreet who, as the chief executive of a company that  provides advisor-sold 401k plan services, most certainly has a direct financial stake in seeing that the 401k never goes away.

As with all things that provoke hysteria, there is a tiny kernel of truth and plausibility to be found, but it is not the "confiscation" myth. Ghilarducci did indicate she was in favor of a Social Security Administration-run fund that would consist of 401k assets. But, rather than advocating they be forcibly confiscated, she suggested Congress act to allow workers to voluntarily exchange their plans for a "Guaranteed Retirement Account":

"Short term, I propose that since 401(k) accounts and the like are financial institutions -- the bank about where 38% of the workforce can intend to save for their retirement -- Congress let workers trade their 401(k) and 401(k) - type plan assets (perhaps valued at mid-August prices) for a Guaranteed Retirement Account composed of government bonds (earning a 3% return, adjusted for inflation)."

Ghilarducci proposes longer term the creation of a GRA and the scaling back of tax breaks for 401k-type of accounts. Nowhere in her testimony does she propose congress simply confiscate existing 401ks and mandate the elimination of 401k-type accounts. Nowhere.

Regardless of whether one agrees with Ghilarducci's proposals, it is a far cry from encouraging Congress to forcibly confiscate all 401k plan assets and dump them into a SSA-managed GRA. In fact, I would say that more than "being a far cry," it is materially inaccurate and purposefully designed to discredit her.

It is incredible to me that reporters don't bother to do even the barest minimum of research in reporting and spreading bizarre inaccuracies. It took me all of 10 minutes to "dig up the truth" about the Miller hearing and Ghilarducci. It is not as if Ghilarducci is some kind of secretive operative hiding in the dark shadows. Here is a link from an April article and interview in CNN Money magazine with Ghilarducci.

As well, she has a book out which was released last May: "When I'm Sixty-Four: The Plot against Pensions and the Plan to Save Them."

Again, to be explicit, Ghilarducci is not arguing for the confiscation of 401k's. She is proposing the abolition of the pre-tax contribution feature.

Socionomics of "Confiscation"

Regardless, none of this should be particularly surprising from a socionomics standpoint. This is part of the ongoing transition to a very dark wave of social mood that impacts all aspects of our lives; from our views on Wall Street and retirement to what defines luxury, our tastes in film, art and music.

Just as risk-seeking behavior, which exploded during the positive social mood turn, helped facilitate the birth of self-directed retirement plans and the death of defined pension plans, so too will negative social mood likely facilitate the death of self-directed plans as we know them, the re-valuation of savings over investment and the further divide between "savings" vs. "investment."

It is not out of the question that we eventually see some type of "forced savings" trigger so that self-directed plans would require a minimum contribution threshold be met, perhaps based on mean income, to be eligible for self-direction and tax benefits, which would be rather ironic in that its intent will probably be to "rescue retirement investing" even as it elevates savings in status.

I am not saying I think this should happen, I am saying that I think this, or something like it, will happen.

But look, this should not be surprising for us. Wall Street as we knew it is gone. It is no more. That party is over. The past year and a half has been one long mural painted on a wall alluding to its inevitable destruction. Things are going to change dramatically. At the bottom, the very bottom, stock "investing" will seem as ridiculous to the vast majority of Americans as watching people play poker on television seems now.

No positions in stocks mentioned.

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