401(k) Plans Facing Changes
November 7th 2008 03:15
CNBC has a thought-provoking article Will Democrats Tinker With Mutual Funds, 401(k) Plans?
Here"s the problem, retirement accounts have been devastated by the market decline. That may mean that those close to retirement will have to work instead of retiring, thus taking jobs from young people entering the labor force. What is being floated is some kind of remodeling of 401 (k)s
Under a radical plan floated plan offered by Teresa Ghilarducci, an economist at the New School for Social Research in New York, workers would receive a annual $600 tax refund if they set aside 5 percent of their pay into a retirement account run by the Social Security Administration, which would then invest globally in risky assets to seek high returns.
From that pool, workers would be paid a guaranteed 3 percent a year indexed to inflation.
The change would encourage workers not to hang on to jobs longer than planned.
From that pool, workers would be paid a guaranteed 3 percent a year indexed to inflation.
The change would encourage workers not to hang on to jobs longer than planned.
Democrats are at a fork in the road: One direction leads to plans that are "more fair, but not do anything to expand coverage or guarantee returns." They get to define "fair." The other direction leads to "broaden coverage and guarantee returns."
Now we know the government under the Democrats will need money for their plans, but don't want to expand ther deficit. IMO, we face the real danger that the government takes the assets in your 401(k) and replaces those assets with government bonds (IOUs) that pays nominal interest rate and linked to inflation. That's the future as I see it.
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