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October 28, 2008


Keith Schmitz

Thanks for posting this Brawler.

The 401(k)'s and IRA's have been a great distorter of our economy, the way we view work and the way we view each other.

Because our retirements depend on wringing performance out of their investments, that means leaning on other companies to cut the salaries, benefits and jobs of their workforce. And so the other person who is investing in your company is expecting the same thing to happen. We are in effect enslaving each other, so that some day we can retire, a prospect that may not happen.

CEO's become glorified stock salesmen, and that is why obscene salaries and options are lavished on them.

No wonder we have become a mean society.

Here is Ghilarducci's great column from the NY Times of a few weeks ago.



I think this plan to redistribute my retirement nest egg is outrageous. My points of contention are:

- A government plan would have a return of 3%. The long term return on the S&P 500 from 1950 to 2007 was 11.8%. The returns from the proposed plan are obviously inferior. A knee jerk reaction to a cyclical movement in stocks is a call to panic and not to reason.

- The Ghilarducci plan would mandate 5%. But a worker making 50-100,000 a year could save up to 15,500, vs. the 2,500 - $5,000 under the Ghilarducci plan. Seems like a disinsentive to save

- All contributions to a 401K plan goes to the participant or their family. Under the Ghilarducci, when the participant dies, the family only gets half of the contribution.

- Ghilarducci claims that the government could run retirement plans more cost efficiently. Really? The cost on my Vanguard SP500 fund is 0.19%. How will the government beat that?

- Ghilarducci claims that the 401K plans are unfair. Really? Individuals not part of a 401K plan can contribute tax differed income to IRA plans if they chose. Also, the 401K plans are capped at $15,500 for 2008, so an employee making more money can't contribute more than the lower level employee. Seems fair to me.

- By moving retirement funds away from the capital markets, such a plan would cause a reduction in the equity and bond markets and reduce the amount of available funds for capital expansion and development. The Miller / Ghilarducci plan does not seem to consider those impacts.

- Under my personal retirement model, applying the Miller/Ghilarducci's plan pushes my retirement back at least 5 years to 70.

- I do not want the US Government managing my retirement. This is from the same management that brought us a Social Security plan that is targeted to go bankrupt by 2041, a FannieMae/FredieMac program that will cost the US taxpayers at least $200 billion, the $13 billion bailout of Amtrack and other wonderful programs too numerous to mention.

If the government wants a fair retirement plan, the answers seem pretty simple:

- Raise the annual tax deduction for IRA contributions from non-401K recipients to the same level of 401K plans, currently $15,500

- Allow spouses of 401K recipients that do not have a 401K plan to contribute up to the lesser of $15,500 or the gross income of that spouse in IRA investments


Is the idea is to minimize risk in 401k's or to have the government continue to borrow from Social Security and further increase the national debt?
I assume that 401k risk is the core issue, and if so, then a better proposal would be to establish laws to limit 401k investments into 'low/moderate risk funds' which have no derivative components.
Otherwise, why not allow each American to move their 401k into CDs and Money Market funds which can be guaranteed by the US government?
As proposed, the Ghilarducci plan is nothing more than new FICA and inheritance taxes having a fixed investment return which fails to match the rate of inflation.

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