Consumer is King

The Consumer is King, Part II

by Charlie Epstein (comments: 0)  |  

Teresa Ghilarducci is at it again.

Ghilarducci, a labor economist of The New School University, has for many years been trying the promote her retirement tax-reform policies, essentially a bloated government sponsored retirement plan to replace our current private 401(k) system.

May I remind you that this very same 401(k) system has worked very well since the early 1980's creating over $5 trillion in private savings accounts funded without one dollar of the tax payers money?

In addition, the system has not required a bloated government bureaucracy of union employees who receive a government sponsored life time retirement plan funded by, you guessed it: you the tax-payer.

 All of these issues, Ghilarducci fails to point out and discuss.

Instead she continues to hypothesize and promote government solutions that in the end are authorized by government politicians and run by bureaucrats who do no have the expertise to manage anyone’s money.

Want a few examples?

You don't have to travel far to see evidence of this. Social Security is a bankrupted "pay-as-you-go" system that the government keeps robbing to pay for other government programs. In addition, Social Security’s promised benefits continue to be reduced or eliminated in their entirety. 

The most recent are the quietly announced changes to SSI prevented millions of near 65-year-old retirees from receiving their spouse-restricted benefits. (See recent social security changes).

Imagine putting your current 401(k) retirement money in the hands of these same government officials. Bye-Bye Retirement.

The post-office is yet another tax-funded government program that has successfully lost billions over the past 3 years. $12 billion dollars in 2015 and $7 billion in 2013 & 2014. This from an agency that is a monopoly!

So, what is the tax-payer robber baron Teresa Ghilarducci up to now? A government sponsored retirement plan to bail out American's who refuse to save for their retirement.

Her first plan that she promoted for some 10 years, required the government to set aside 5% of every Working American's salary to fund a government-run retirement plan. Where was the 5% going to come from? Ghilarducci recommended the US Government floating a 40-year bond.

Translation: that would raise even more debt, for which our children and grandchildren would end up paying.

Try as she might (for 15 years), Teresa was unable to sell her ideas to our politicians. Thank goodness. But now she is back with an even better idea: GRA's- Guaranteed Retirement Accounts. GRA's would effectively act as self-funded pension to augment Social Security, and effectively replace 401(k)s altogether. That's right, the union minded robber baron, wants to shut down the most effective privately funded retirement plan, aka your 401(k), and use what she believes to be inherent savings that employers would not have to pay from 401(k) administration fees to fund her new government-controlled retirement accounts.

Let us not kid ourselves> Ghilarducci's ultimate goal, has always been to replace the private sector’s 401(k) plans with government mandates that tax you and I. She claims her GRA'S would not cost the government any money. Instead they would be funded by a "mandatory" contribution of 3% or so from full-time workers, half of which would be paid by employers. Low-income earners would receive tax-credits to offset the additional cost and best of all self-employed workers would be forced to pay the lion share of the GRA's costs. 

 Problems with the Proposed GRA plan.

  • First, the majority of savings that she believes employers would receive by shutting down their company sponsored 401(k) plan do not exist for all employers. The majority of 401(k) administration and record keeping costs come out of plan assets and are paid by all employees: a democratic approach. Plan Sponsor Fiduciaries are already responsible for making sure these costs are reasonable. In my 35 years as a 401(k) specialist, I have witnessed the accelerated reduction in these expenses due to increased competition, vigilance by plan fiduciaries, lawsuits and 408(b)(2)fee disclosure by the Department of Labor.
  • Second, as for her "mandate" philosophy of requiring employees and employers have to make a 3% contribution, one thing I know from sitting on numerous advisory boards to the retirement industry and business groups: both individuals and businesses are loathe to government mandates. I believe this goes as far back as the Boston Tea party, when our founding fathers said, taxation without representation will not be allowed.

It's time for liberal thinkers like Ghilarducci to stop wasting everyone's time with her far-fetched policies. We already have a free-enterprise competitive system for funding every working American's retirement.

What we need is for employers to adopt automatic features like auto-enrollment and auto-escalate that statistically produce 70-90% participation and help grow employees saving rates to 10% or more. All of these features cost the tax payer zero dollars and do not require another bloated union dominated government agency to run and bankrupt the system.

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Charlie Epstein

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Charlie believes the cornerstone of creating success with your finances and your life, is to act like an entrepreneur! Eliminating an "entitlement mentality" and taking control of your life's choices and personal finances are the first steps to igniting and aligning your passions with your finances.

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