The catch with all the employer offered deferred savings plans is that the employer usually defines the investment company and plans. Will this be the same.

With my current employer ALL the plans offered in the 401K have lost money so far this year. This includes the money market fund, which incidentally just raised its fees

My gray hair hurts!!!

Want more social security income by paying more in? Why not allow that as a possibility?

because that would be progressive.

tax deferred accounts are better because they are regressive (those with higher marginal tax rates benefit more). also it’s the kind of “pension” the privatizers love.

yuck.

oh, and is this really the moment we should be worrying about americans not saving enough?

force employers that don’t offer retirement plans to enroll employees in a “direct-deposit IRA account,” with the option for workers themselves to opt out

It’s a mandated program. Sooooooo, who is mandated to put money into these accounts–the employer or the employee? Who is penalized if money is not put into these accounts? Or is the penalty for not offering the option?

I think the idea is to have transportable pensions and transportable healthcare within a system of employer “fringe benefits”.

Why can’t we break the link to employers completely and raise the money from general taxes? That way we lose a lot of the complexity of separate systems of taxation, the dependence on employers (what do the self-employed do?) and still provide pensions. But then, I guess, there would have to be some way of dealing with executive gold-plated pensions.

Isn’t this the same as privatizing social security? Imagine what would have happened if we have 90% of the people investing their accounts 2 years ago. This is just a change in definition. No different than temporary takeover, preprivatization, nationalize etc. But then again Obama did ran a platform of reforming Social Security during the primaries. So it’s nothing new.

But then, I guess, there would have to be some way of dealing with executive gold-plated pensions.

I have a modest suggestion…

Same deal as has been suggested re health care, i.e., basic plan for all. If you want gold-plating, you pay more.

And I’m sure that funneling more of our cash to Big Money so that they can collect fees (”rents”) for managing it never crossed their minds.

if healthcare reform is being designed for and by corporate america, why not our retirement program be too?

Is there support for this in Congress? From who The Motley Fool notes that before the bank crisis most mutual funds got less returns than the Dow or S@P average.
Every small investor in the market knows that. It would just be better to buy the top 10 dow funds every year and sell the stocks that dropped out of the top 10 last year.

I just watched the hearings on the ‘re-structuring’ of 401(k) plans with Dean Baker and others.

There was some discussion around some federal savings plan that apparently Congress can put money into – it’s managed by the federal government similarly to the SS Trust fund, apparently is waaaaay safer than the stock market. And no, regular people cannot put money into it. That issue was brought up and immediately the corporate type on the panel objected saying that she thought that it should only be done in the private sector. WTF?

Again, if it’s good enough for Congress, why can’t the rest of us participate as well.

Forkers!

This sucks. I can’t help believing that these Healthcare and Pension proposals are so bad, they’re planned to go bust and the Dean Baker, Joe Stiglitz, Paul Krugman cavalry will ride in to the rescue in the 11th hour.

So Ian, is this similar to what would happen if both employers’ and employees’ CPP contributions were put into a private plans instead of where ever they go now? Or is it more like a mandated RSP, but with an employers contribution? Can’t help thinking like a Canadian…

Sure the market will go up with this plan a huge pool of new money will do that and yes everyone buying when the market is low would help provided that first we get regular people paid and buying again first.
If people are not buying again all that results is a bubble. A more job centered stimulus plan is needed like China’s.

It was quite refreshing to hear Mr. Bogle – owner/founder of Vanguard Funds criticizing all the greedy people on Wall Street. His proposals seemed to be very refreshing – including transparency on all the hidden fees and charges that are incurred by 401(k) holders, unbeknownst to them. He also said that people making $18,000 per year could not be expected to contribute to any kind of plan other than SS because they just don’t have the money. Wow!

AAAnnnnd…he said SS benefits should increase, and that if people want more they should be able to pay more voluntarily into the SS fund in return for higher benefits when they retire. Why re-invent the wheel?

So Obama is giving people another opportunity to save for retirement? What’s the cap on annual contributions? If it’s relatively small, then it’s a great thing for the average Joe- if it’s large- say $20,000 a year, then it’s another tax dodge for the rich.

btw, love the title to your post: Why does Obama want to force us to do business with the banksters in his new pension scheme?

That issue was brought up and immediately the corporate type on the panel objected saying that she thought that it should only be done in the private sector. WTF?

The mutual funds charge fees read the book the Motley Fool they got pages of material on this issue.
Either you do your own research and take a chance and don’t get charged huge fees.
Or you pay someone like a mutual fund who gets paid regardless of performance. Or in a hedge funds case gets paid huge if they do perform but they still get paid regardless.
There are a lot of individual investors and day traders who will think this plan is nuts sure we will ride the wave and then sell.

Diary right there)

If this is a surreptitious move to a consumption tax, it’s a good idea. The idea of a consumption tax has been around for 60 years. It’s a good idea. It taxes consumption rather than saving. When you do your tax returns, you report your income and your saving. You subtract the second from the first and you get taxable consumption (with the usual exemptions. It’s a good idea.

The reason that paying more in and then taking more out isn’t going to work is that it assumes that you are creating an account in SS. But that is not at all the basis. You pay in according to your income during your working life and then you take out according to how long you live, how much you made in the best times, and the money coming out is not related to what you put in. It comes from current workers.

Now, any kind of savings plan that entails investments is ok as long as you realize that if you happen to retire at the wrong time, you’re screwed. Ask current retirees. Therefore, social security should keep its present philosophy of paying guaranteed amounts and let the other savings accounts (the various IRA’s, 401 (k)’s, 403 (b)’s and what not) that the person controls be used to supplement SS.

Don’t forget a payday for the Mutual funds and another financial bubble. People need jobs that pay so they buy stuff they need credit for loans if we do not have that then the Dow will tank again.

first of all, as a citizen i object to surreptitious government. especially when i’m being told it’s transparent gov.

second, it does not sound like a good idea to me. but am willing to be convinced if you will explain.

Since consumption pretty much equals income in aggregate, I don’t understand the big fuss about a consumption tax. Except that it’s regressive, so is perfect for trickle up lovers.

Agreed! I have yet to hear a better idea:)

Obama is nuts. His economics is incoherent. This subject does not belong anywhere near the agenda in current circumstances.

Sigh.
More writing and calling lies ahead. It’s never over, is it?

this is NOT privatizing SS.
it is alongside not instead of.
You can just choose social security or have this, as well.
you dont like the markets, you can prolly choose a bond or money market fund.

Also, as eCAHNomics has noted, what this plan will do is shift savings from tax paying accounts to non-tax paying accounts. Since the government is thus paying (in reduced taxes), this means overall savings in the economy might actually go down

Also where will the government get the tax money from that its losing?

good points. but i’d like to see ss benefits increased. especially for all the people who’ve already retired and seen their savings (home and 401k/ira type) go cliff diving.

Oh, and Ian, thanks for remembering those comments of mine. I wrote about that in 1981 when IRAs were being introduced to the U.S., and the extant Canadian program was a perfect test case of the influence of tax-deferred savings plans on aggregate savings. 1981! And it comes up again nearly 30 years later. Fools.

I think you are wildly over reacting on this issue. If we can agree that increasing personal savings rate is a good thing, then we can view this proposal as a way to instantly increase personal savings by making investing in an IRA the default position. I think we can also all agree that even a dramatically scaled up SS would not fully meet the needs of all Americans in retirement. Everyone needs to privately save for retirement as a supplement to social security. That is a fact of life. It is also a fact that there are a lot of people who could be saving privately for retirement right now but aren’t because they don’t know how or where (tax law and IRA’s are confusing). So by making these things opt out rather than opt in, a lot of people who would not otherwise be saving to supplement SS are now going to have some private savings. This is a great thing.

Now unless you are going to take the position that individuals should never invest money in the stock market, I don’t see how this can be seen as a bad thing. People can use IRA’s to purchase Treasuries for crying out loud. There is no inherent reason why this should have to involve excessive risk. To the extent that this encourages people to actively think about private savings for retirement, then at a minimum people are going to be exposed to a lot of information about retirement planning and investing who may have not thought about it much before. I think this is a great idea.

it is alongside not instead of.

it’s not alongside of anything so long as there is no political will to pay out of general funds all the accumulated SS surplus.

I’m hoping that by floating this idea as a test of the public’s support Obama is trying to get this GOP/Blue Dog idea killed and disliked by the public before the GOP PR machine can Create support for it.
Its our job to make Obama do things like FDR said:)

Agreed! Nice improvement to texasaggie’s idea @ 21

This is NOT the time to focus on savings. Right now, the more people save, the lower the economy, interest rates, and the stock market go. Destroying savings. Called the paradox of thrift.

Once (if) the economy recovers, we can have an intelligent conversation about savings. To do it now is nuts.

Problem is it is all taxable! Which means the baby boomers Will live near or below the poverty levels, especially if they must also pay for their medical. Sure sounds like a lose lose proposition to me!

This is more or less the same thing bush wanted to do with social security. If the market takes a dive so does your savings?

With deficits, it’s borrowed.

And how much faster will employer contributions disappear once such a program appears?

Savings is good yes investments can disappear in a second. Mutual funds are lousy and most folks even with educations can’t pick stocks.
Nope that is not fair Alan Greenspan and MBA President Bush created the housing bubble Phil Gramm an Economics Professor wrote the laws that Clinton signed that created the current crisis. So yes stocks are a Gamble even for the educated.
Also Lokywoky @ 15 notes that unless you have over $18,000 Boogle at Vanguard says you don’t have the cash. It takes money to make money.
The purpose of SS is to keep old people from being homeless if we had individual savings accounts today and say 10% of retired people’s money was invested in them just how many old people would be homeless in today’s market?

Right on with the Keynesian smackdown!

Yes and if you look at the Great Depression our current market could still go down much much more.

So a future tax with interest.

I hope you’re right…it sure sounds like Bush’s plan to moi. Bernanke’s/Geithner’s fingerprints all over this one.

Just saw a segment on CNN about a 90 year old man who’s having to go back to work because of all the investments he lost from the Madeoff scam. 90 years old…..my next door neighbor has to have a job and he can barely stand; gets around most of the time in a go cart.
I don’t hear a peep about raising the cap on income to help fund SS. you watch, they will scream so loud about the rich losing their entitlements that it won’t happen.
I feel hot ( maybe warm) and cold about Obama anymore. Screwed and not even kissed.

Heh. Over at the Washington Note, Clemons had a post by James Glassman about how govts couldn’t run banks. In the comments, some one had remembered he was the coauthor of Dow 36,000. I piled on, saying if he had been the author of Dow 3,600, we might be willing to listen. On the substance of his post, I added: Well, one thing that the govt wouldn’t do if it rans the banks is hire financial engineers to develop highly leveraged toxic assets that they didn’t know anything about.

Raise SS benefits and get National healthcare. Either we risk in in the free markets retirees being homeless in market down turns or we save money long term with national healthcare and raise SS benefits which will be a cost.
The problem is the wars in Iraq, Afghanistan and military spending will all have to cut because we can’t afford to do this now.
Also we cant afford to outsource the army to private contractors any more no more blackwater killing civilians. No more KBR electrocuting our troops in the shower, no more food made from imported immigrant labor for the army.
Dick Cheney’s Dream will be over (sob)/s

Phil Gramm an Economics Professor wrote the laws that Clinton signed that created the current crisis.

if you are referring to the commodity futures modernization act of 2000 and the gramm-leach-bliley act, then i’d argue that they contributed to but not created the current crisis.

also, while gramm was a big player in the deregulation mania, he was not alone and could not have succeeded without larry summers and robert rubin among others (my diaries at the links).

Real good point government is cautious by nature Ponzai schemes would not fly. A long as we keep corruption out the government might not make to much money bt hey won’t lose it either.
Its he banks coming to the government for bailouts not vice a versa so who says that government can’t run the banks?
Where is the proof? Banks can’t run banks.

if you are referring to the commodity futures modernization act of 2000 and the gramm-leach-bliley act, then i’d argue that they contributed to but not created the current crisis.

I stand corrected.

did you hear the “debate” on democracy now this week re healthcare reform? there was someone from the new america foundation arguing for insurance based reform who didn’t even know what was going on in MA. well, that’s the most generous way i can describe it – because he said some stuff that’s just not true.

been thinking about emailing steve and/or writing a diary, but have been too brain dead today.

Sometimes the absence of a profit motive is a good thing economically. One key about economic policy is to apply the right policy at the right time. Most policy makers aren’t flexible enough to do that. They think one economic policy size fits all.

Selise, You might want to see if this is real or just more Ezra head fake.

Ian, Is there anything in the budget that promotes the public option of Medicare for the uninsured???

Selise: here’s the link: http://www.brianbeutler.com/2009/02/public_option/

also, while gramm was a big player in the deregulation mania, he was not alone and could not have succeeded without larry summers and robert rubin among others (my diaries at the links).

True why can’t we get some Lefty economists jobs working for Obama. If not for the current crisis forcing Dumb and Dumber to go Left which they do not want to do then Dumb and Dumber would still be saying nothing needs to change.
Its not our political influence changing things its the fact that everything else has been tried and didn’t work.
They have no choice try it our way or go broke. The GOP is choosing to go broke.

I think I caught part of that. Clemons is a mixed bag. He’s not as much of a hawk as some on foreign policy, and that makes him seem sensible, but that’s too conclusory. He varies, depending on the application. I don’t have a good feel for him on domestic policy, but the two examples in this thread: Glassman on bank nationalization, and the guy on dn on health care reform, doesn’t seem like a responsible introduction.

Simple. The first 25% of Income tax goes to funding one’s pension, with a cap of $10,000 or so a year, inflation adjusted.

The fall in Government revenus gets taken out of the taxpayers’ choice of programs.

Check the box for the program reduction, check the box to put the money in Gov Securities, No-load Index fund, etc.

I think Obama hired Summers to fill the mysoginist slot in the affirmative action plan. /s

clemmons area of specialization is foreign policy, it’s just that 1) he has a blog i’ve commented on, and 2) i’ve sent him email in the past that he’s responded to.

so i thought i’d be more likely to get a response from him than anyone else at NAF, even the guy who did the interview..

thanks. i know some about MA reform (i live in MA), not so much about what obama’s plan is (pretty opaque to me). i’m very very pissed off though at many of the supporters of obama’s healthcare reform who are ignoring and/or misrepresenting the people who are really expert about the policy issues and are pro-single payer. the people who have honestly held differences of opinion are not who i’m complaining about. just the dishonest / stupid / manipulative stuff. like what i heard on democracy now!

Profit motive and flexible gotcha. Profit motive I think the government can do in a smaller way. Flexible means not putting all your eggs in one basket.
Or diluting the ideas good or bad by having to many of them.
Mutual Funds for example invest in too many stocks to keep track of all that goes on in the markets and miss out on better returns that people who study that segment of the market gets. Although by being diversified they don’t lose it all if that segment cashes like tech did.
At some point there is a diminishing return of having to many and too few eggs in a basket so just what is the happy medium and how do we discover it for right now and discover when it changes?

why can’t we get some Lefty economists jobs working for Obama.

because that’s not who obama wanted.

….

oops new thread

I’m surprised he was confirmed.

Or maybe it was Rahm?

There are shell-games going on and they are maddening. I assume that you do not wish to be further triangulated into nonreforming healthcare reform. That’s why I continually search for healthcare related articles. I thought you might be able to test the veracity of the information in the link I gave you.

i remember reading about obama’s choices for economics advisors last june or july. you think that was rahm’s doing?

or maybe whatever reasons obama has to like ex-investment banker rahm are not so different from the reasons obama chose summers?

i appreciate the link and will try to remember to read it again tomorrow (when i hope to not be so brain-dead). first pass it it looked like vague nice sounding talking points and not policy. but that was just a quick skim in brain-dead state.

guess i’m going to have to try to educate myself on this issue too.

too many issues, not enough brain cells. it would be so much easier if progressives could just rally round hr676 as a place to start.

At some point there is a diminishing return of having to many and too few eggs in a basket so just what is the happy medium and how do we discover it for right now and discover when it changes?

I don’t know anyone who’s figured that out.

I convinced SUNY-New Paltz Foundation to stop doing market timing. I spent my career doing economic forecasting to be applied to market timing, and decided it couldn’t be done. (There a more complicated evaluation, for another day.) Endowments are perpetual (unlike pension funds) and so the math seems to say that you have greater returns with smaller risks if you choose your asset allocation and stick to it. It’s a Smith Barney product (there are others like it), where SB manages the managers for each slice of the portfolio.

But even that is complicated. For example, we ended up with more cash in the current downturn than following the rules would have resulted in. Now that’s a good thing, by accident, as the portfolio was not rebalanced on time as the stock market was falling, and the large-cap equity manager had more than their allowable amount in case. So we ended up doing market timing anyhow, since we must now decided when to rotate back into stocks.

The other problem is that one typical slice of the equities part is between foreign and domestic stocks. But the average foreign revenue of the companies in the S&P500 is 50%. So that was of allocating the portfolio is dated, and when I asked our managers at last month’s meeting if anyone was doing any fundamental work on a more sensible way of diversifying a portfolio, the SB reps gave me the deer in the headlights look.

No easy answers.

Once a person sees Sicko, watches Sick Around The World on Frontline, and then reads HR 676, its an issue that cries out to be solved quickly, and easily just by imitating our neighbors best plans.

The link I sent you guys focuses the tension around a switching-in of universality and a switching-out of public options such as Medicare, by the Obama team.

I hear your fatigue. This is tomorrow’s question.

I’m corrected again still Obama I think is relying on his advisors in this area on who to pick. I smell Blue dogs and conventional wisdom.

I hear your fatigue. This is tomorrow’s question.

thanks. sincerely appreciate your work on this and regret shortness (meaning tone not length) of my comments. just really tired and fuzzy headed now. please give me hell tomorrow.

you too TCU.

Try diversifying based on opposites American cars go up green energy goes down if oil gets cheap.
Strong dollar cheaper gold,
Buy the latest trend when people are spending and when you think the party is over start getting out.
On market timing I agree but a good smack down of exactly why its wrong would be cool.
How do you choose your asset allocation? What do you choose as assets and why?

Obama is nuts. His economics is incoherent. This subject does not belong anywhere near the agenda in current circumstances.

Obama’s programs to deal with the economy are too little and poorly structured and he keeps bringing up these things like the Orszag plan and these accounts when the economy is falling apart. I agree incoherent, confused, no sense of priorities, a real mess.

“And if you want to increase savings, perhaps just make sure that consumers have access to savings accounts which pay decent rates of interest, rather than just offering tax-deferred plans.”

This was the other factor manipulating people to suspend reason and buy into the housing bubble. With even certificate of deposit returns at less than 2% the possibility of saving for a downpayment on a home or a retirement account was impossible and downright ludicrous compared to the rapidly escalating costs of real estate.

kind of late to the thread but…

Paying more into social security would probably not be viable if for no other reason than half the country is convinced it is bankrupt.

Is it just me or does this sound like yet another giveaway to the banks?

Investment fees anyone?

This problem is not limited to pension reform — the fix du jour. By propping up the failed, insolvent banking system, Obama’s team is pushing the opposite of transformative change in this crisis.

I forsee the U.S. Bankruptcy Code priority of claims booklet being on the NY Times best seller list for 2009-10, but not for financial corporations deemed too massive to stand before a judge and testify under oath as to their real balance sheets.

An insolvency problem can’t be cured when everyone on Wall Street and both ends of Pennsylvania Avenue is pretending that it’s a liquidity problem. (h/t to Nouriel Roubini)

Am I missing something?

Folks who are talking, at this point in the collapse of the markets, about yet another govt program to incentivize stock ownership by the sorts of people who have no business being in stocks, can really have only one end in mind. They have concluded that there are already so many voters tied into the stock markets with 401Ks, IRAs, etc., that these markets cannot be allowed to implode down to DJIAs of <1000. They figure the best way to keep prices from deflating rapidly is the promise, into the indefinite future, of all that money flowing in on the buy side as millions of workers save for their retirements.

It’s not going to work, not even in the short term as a desperate gambit to at least smooth the coming crash into a soft landing. That they would propose such a thing now, when propping up the markets seems the only sense such a scheme would make, is to inspire the opposite of confidence in the future of those markets, and therefore to defeat the very purpose of the scheme.

Obama is nuts. His economics is incoherent. This subject does not belong anywhere near the agenda in current circumstances.

I love it that you participate here regularly and argue with logic instead of the really ridiculous, even laughable, Republican politician’s rhetoric.

However, harrumph, I don’t know what you think is incoherent, so I can’t agree, disagree or anything else.

After reading some other posts…

As I understand it, and that’s not saying much for this particular issue, it’s required for employers to set these accounts up, but that an employee can opt out. So, it’s not forced on anybody. Second, we saw it mentioned earlier with 401K and now with IRA, so I’m guessing it’s either going through some kind of debate about how best to do it. Third, I can’t imagine how it relates to taxes. It doesn’t appear to create a new kind of retirement account, so the only big thing it seems to introduce is required creation of these accounts with electronic deposit to push it’s use.

As to whether pushing savings at a time like this is wise: that might be the best argument for hesitating. But, as the plan is apparently optional, it doesn’t seem to be a big problem. The Devil is often in the details, so I’d want to keep watching to see how flexible it is or if people are going to be forced into something they might regret. Flexibility is key for people who don’t have tons of dough to start with.

Thank you: I’ve been trying to find some internal coherence. Appreciate your clarity on the null set.