By Brent Regan
Another crisis is coming to a politician near you and this one is also likely not to go to waste by the Obama Administration. The increase in the number of Baby Boomers hitting retirement during a sour economy, coupled with bankrupt states from overly generous pension funds and ominous deficits have made Big Retirement ripe for politicking by President Obama.
Look no further than Obama’s new chief economic advisor, Gene Sperling, an advocate of “Universal 401(k)s.” Obama mentions Sperling’s plan on page 216 of his 2006 book The Audacity of Hope, two paragraphs before he discusses the “most pressing task” on his agenda, “fixing our broken health care system.”
A senior fellow at the liberal Center for American Progress in January 2005, Sperling wrote in his article, "Progressive Framework for Social Security Reform," that a Universal 401(k) “offers all Americans a private retirement account on top of Social Security, and uses government funds to match contributions made by middle income and lower-income workers.” He argues that “the Universal 401(k) would spread individual savings and wealth creation to tens of millions of American families currently falling through the cracks.”
In order to pay for spreading savings and wealth creation, Sperling proposes: “A three percent surcharge on all income over $200,000 – whether from income, dividends or capital gains – dedicated to increasing national savings now and increasing Social Security solvency.”
Sperling’s plan was lauded by a Center for American Progress in an article titled, "Making the Economy Fairer with Universal 401(k)." Spreading the creation of wealth or individual savings may not be as popular today (ie. Obama’s compromise on the Bush tax cuts for top earners), but the Obama Administration has already taken steps to fundamentally transform retirement in America.
In January 2010 Bloomberg reported: “The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.”
In an op-ed for Investor’s Business Daily titled "Class Warfare’s Next Target: 401(K) Savings" Newt Gingrich and Peter Ferrara wrote:
“In plain English, the idea is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years...They will tell you that you are ‘investing’ your money in U.S. Treasury bonds. But they will use your money immediately to pay for their unprecedented trillion-dollar budget deficits, leaving nothing to back up their political promises, just as they have raided the Social Security trust funds.”
At the end of the third quarter of 2009, Americans had $15.6 trillion in retirement assets.
In February 2010 the White House also released its “Annual Report on the Middle Class” (chaired by Vice President Biden) in which “Guaranteed Retirement Accounts” (GRAs) were among proposals for “further study.” The GRA is the brainchild of Teresa Ghilarducci, an economist at the New School for Social Research in New York. In 2007 Ghilarducci issued a briefing paper for the liberal Economic Policy Institute suggesting the elimination of tax breaks for (and essentially wrecking) 401(k)s and a mandatory requirement that employers and employees jointly cough up another five percent of their income (in addition to Social Security) to be put into a government-run GRA. Ghilarducci, who testified before the House Committee on Education and Labor in October 2008 regarding GRAs, wrote that the current US retirement system “exacerbates income and wealth inequalities.”
Alarmed at the White House report, then House Minority Leader John Boehner and 12 other Republicans fired off a letter to Labor Secretary Hilda Solis and Treasury Secretary Tim Geithner:
“The Vice President’s comments are troubling, insofar as they come on the heels of testimony before Congress from supporters of GRAs proposing to eliminate the favorable tax treatment currently afforded to 401(k) plans, and instead use those dollars to fund government-invested GRAs into which all employees would be required to contribute a portion of their salary -- again, with a government subsidy. These advocates would, essentially, dismantle the present private-sector 401(k) system, replacing it instead with a government-run investment plan, the size and scope of which remain to be seen.”
This year, watch for increased rhetoric on the number of Americans without the assurance of retirement funds, the cost of 401(k) tax incentives to the deficit and a retirement system that is “broken.” My only hope is that our newly elected officials will not pass a retirement reform bill in order to find out what is in it.
Question of the Day: Do you support another federal retirement program? Please vote here (registration is necessary).