Dems Consider Doing Away With Part of 401(k) Tax Advantage?

Even though I did vote for Obama, I am still extremely concerned with what could happen if (when?) Dems secure a political monopoly in Washington…especially if they achieve a filibuster-proof majority in the Senate.

For example, consider this disturbing idea seen at Workforce.com:

Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.

House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute. […]

Under Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.

The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.

I’m not necessarily opposed to mandatory saving…but obliging us to put 5% of our income in bonds earning only 3% per year?  Ick!

True, a +3% may seem rather nice given the myopia of the current market crunch…but over the long term?  If such safety must be enforced, at least direct the funds to I-bonds and grant some protection against inflation.

I can think of several ways I’d love to see 401(k) and other alphabet-soup tax-advantaged savings plans reformed.  De-adavantaging 401(k)’s and forcing investment in a measly 3% bond is not one of them.

I doubt such a plan will really have legs.  However, perhaps we should all start adapting from the shenanigans played by the GOP to the foolishness which will certainly arise from the Dems.