REFORMING RETIREMENT ACCOUNTS

Teresa Ghilarducci of the New School for Social Research recently proposed a plan to require workers to trade their current 401(k) plans in for a Guaranteed Retirement Account (GRA):

• Require every worker to put a mandatory 5 percent of after-tax earnings into a GRA (the employer would contribute half of the 5 percent).
• Pay a monthly amount at retirement, similar to an inflation-indexed annuity, with a guaranteed 3 percent real rate of return on the account balance.

The plan would also eliminate tax-exempt retirement accounts. As a result, the marginal tax rate on saving would be increased. This would create a disincentive to save, reducing capital formation. Even worse, GRAs are far from personal accounts:

• They do not allow individuals to pick from an array of funds; the money would instead be pooled and invested by the government as it sees fit.
• The government would have the right to reduce the guaranteed rate of return during economic downturns [so it's not 'guaranteed'].
• The fund would be managed by an independent body, similar to the Thrift Savings Plan for federal employees; Congress has frequently attempted to require the TSP to invest in funds of dubious value [because they're politically correct].

Source: Pamela Villarreal, "Retirement Account Reforms: Good and Bad," National Center for Policy Analysis, Brief Analysis No. 638, December 17, 2008.

[This is a blatant attempt to steal your 401K and let the government tax more of your money and play with the rest, plain and simple.]

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