No. of Recommendations: 1
Congress had a meeting to hear a proposal by some (idiotic) financial person and who proposed the government seizing 401ks, contributing $600/year (inflation indexed) into each person's retirement account and requiring a 5% contribution per year from each person. The government would then provide a 3% real(?) return each year on the account.

That is my very limited understanding of the proposal and what it was supposed to do.


I read an article about the proposal in WSJ and then followed the link it had to the original article the person wrote.

My understanding of it is limited as well, but I don't think seizing existing 401ks was part of it. They wanted to limit the amount you could pass on, which I saw variously expressed as only being able to pass on half of what was left when you died or passing on your contributions but not matching. Presumably the government gets what you can't pass on, so I guess in a sense that's "seizing" but since you'd be dead it wouldn't bother you that much.

Going forward, they wanted to eliminate the tax-deductible aspect of 401ks.

Personally I'd rather they left 401ks alone. But a problem has been created by companies replacing defined-benefit plans with defined-contribution plans. 401ks were intended to be a supplement, not the whole retirement plan. IIRC West Virginia had switched their teachers to a defined-contribution plan years ago and wound up offering a buyout after something like 20 years because the defined-contribution plan wasn't going to come anywhere near what teachers would have had if they had kept the original pension plan.

The reason people are coming up with plans like this is that people in the lower brackets aren't contributing to 401ks. Case in point, a dear friend of mine in an office administrator position. Her company had an amazing matching program and she never put in any money. So for the 15-20 years she worked there she threw away 6 percent of her salary (the max they would have put in). I talked to her about it several times over the years. She's bright, a published author although not well-educated, but the 401k just isn't in her field of vision for some reason. She's tried investing in real estate but I don't think it's worked out that well for her. But everyone I know who has a college degree and is in a management or technical position is contributing as much as they can to their 401k.

For a few years now, people have been tinkering with ways to get more 401k participation. Nothing seems to have helped. It shouldn't surprise anyone that if companies are eliminating pensions and individuals aren't picking up the slack, the government is going to try and do something. Nobody with any sense like the prospect of a lot of old people out on the street in a few years.

Guby
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