I’ve been wondering about this “universal 401(k)” that POTUS spoke of last night and thankfully just ran across a Tyler Cowen post (he’s an econ prof at George Mason U) that explains it a bit — or at least explains what he suspects Obama is talking about. He also links his own 2006 NYT article that explains even further.
See what you think . . .
I warned before the election that the Dems were planning to come after our 401(k) plans, to convert them into some type of universal, social plan. Congressional hearings last fall indicated such. These concerns by some (including mine) were dismissed as simply being paranoid about something that would not happen. Riiight. I don’t recall this proposed new 401(k) plan being a part of Obama’s campaign positions.
Quoting from the linked NYT’s article, here is the part that will cause the most angst when it comes to merging existing plans into the overall plan:
“Poor Americans who are hit by bad luck, like unforeseen medical expenses, would create a policy dilemma. These individuals might seek to remove funds from their 401(k) accounts, but a generous government match in savings would require tough restrictions on removals. Otherwise, people would just take the savings bonus, and then pull it out, spend it and pay the penalty, circumventing the goal of the plan.
A successful universal 401(k) plan would have to be run as a tough-minded investment opportunity and not as a welfare program. It is an open question whether we have the political will to make this work. One option is to spend some money enforcing a medical expenses withdrawal exception, as found in current 401(k) plans. But of course not every negative contingency can be covered.
A fiscally responsible universal 401(k) plan would not make everyone happy. Libertarians and conservatives would be suspicious of government-created accounts. Liberals might not like freezing or reducing future expenditures on Medicare and Social Security.”
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What is most likely to happen is that this will become yet another major spending entitlement program, and will result in much less flexibility with 401(k) plans that we now enjoy in the case of an emergency —-ability to pay for emergency medical costs, or to borrow from the plan at a low rate and pay back yourself, or ability to remove all funds (paying the taxes and penalties associated with such a decision).
I can tell you this. IF we move toward legislation that will, in effect, merge my existing plan into some type of universal plan that will have no flexibility, then I will simply liquidate my 401(k) plan, paying the taxes and penalties. I suspect I would not be the only one. Changing the rules after contributions have been made was not part of the original deal.
This sounds like a really dumb idea. The poor don’t have money. That’s why they’re poor. They could put money in the banks if they had it. The government matching fund isn’t going to make a lot of difference.
The problem with the banks isn’t that there’s no savings. The problem is that they’ve been careless with our savings. When they no longer spend our money foolishly, maybe we can talk about giving them more.
If you want people in the lower income brackets to save more, I think the first thing you need to do is make sure that the income disparity in this country doesn’t continue to grow. If anything, that trend needs to be reversed for a couple of decades.
I sure hope this isn’t the new Social Security. Obama seems determined to do something about SS, even though there’s no problem with it for at least another thirty years. Giving it to the people who pissed away our savings isn’t what I’d call a fix. At least, not in the most common meaning of the word. Just like with AFOTL’s 401k, you don’t change the deal in the middle of the game.
Well, one thing we need to do is listen for what Team Obama says this proposal actually involves. Cowen has only a guess to offer.
Here is a link to the thread where I previously raised some concern over this back in the fall, and the short discussion that ensued. http://www.folo.us/2008/10/27/obama-on-the-courts-and-the-civil-rights-movement/#more-7000
Some people are poor because of circumstances they valiantly attempt to control, but cannot. Some people are poor because they choose to have (or choose not to prevent having) children that they cannot afford, hence the Octomom debacle. Other people are poor because they are simply lazy and have no desire to change their situation. When I became a lawyer, a family member immediately asked me how I could get him “a government check.” He had worked only sporadically over the years (his choice), had not bothered to support his child and my frustrated response to him was to “get to fuc**** work if you want a check.” I say all of that to say all of this: While income disparity has increased in recent years, I think we need to be careful not to demonize and punish by crushing tax rates the significant financial rewards that come with hard work and success. Obama appears poised to do just that.
OWIL@5, While I am sure you are an exception to the rule, the rule is: Show me a man with a lot of money and I will show you a man with a lot of victims
Kycol @ 6, the problem is that “a lot” is different to “a lot” of people. $100k or even $250k is not “a lot” to a couple who wants to properly educate, clothe and feed a family and also responsibly save for their retirement while paying their bills. That same family has likely seen any retirement fund halved in value in the last year. Bernie Madoff has “a lot” of victims to be sure, as does Donald Trump, I would imagine. I’m sure we could agree that both have (had) “a lot” of money.