LifeWork - a blog about work-life effectiveness. by Anne Nolan

12:27 am | 0 recommendations | 9 comments

House Democrats considering doing WHAT to 401(k)s?

This from Workforce Management’s e-newslettter came through our inbox this week and the first reaction we had was “What? Why?” Take a look:

House Democrats Contemplate Abolishing 401(k) Tax Breaks

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. A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. She testified last week before Miller’s Education and Labor Committee on her proposal...

The article goes on to say that 401(k)s could still exist, they just wouldn’t enjoy the tax subsidy any longer … which would eliminate the incentive for employer matching of contributions.

At first hearing, this sounds like adding insult to injury. But wait – Ghilarducci – wasn’t she that author who wrote something recently about saving pensions or something? Maybe there’s more to this. God bless Google, yup, here she is: she’s the author of When I'm Sixty-four: The Plot Against Pensions and the Plan to Save Them.

Her argument in a nutshell: the way we currently subsidize 401(k)s is woefully inefficient. Here’s a quote from an article she wrote for the Economic Policy Institute:

Tax breaks for 401(k)s and other voluntary retirement accounts are skewed to the wealthy because it is easier for them to save, and because they receive bigger tax breaks when they do so. The value of these tax breaks is equal to the investment earnings on the deferred taxes, which in turn depends on the marginal tax rate paid by a household. A wealthy family in a 35% tax bracket gets a tax break three-and-a-half times more valuable than a family in a 10% tax bracket, even if each family contributes the same dollar amount to a 401(k).

As a result, economists at the Urban-Brookings Tax Policy Center have found that 70% of tax subsidies for defined-contribution plans and IRAs go to those in the top 20% of the income distribution and almost half go to the top 10% (Burman et al. 2004)

So for what we spend subsidizing 401(k)s – which disproportionately benefits the wealthiest who would save for retirement anyway – we could be covering many more people, and more securely.

More from the Workforce Management article:

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... Under the current 401(k) system, investors are charged relatively high retail fees, Ghilarducci said. “I want to spend our nation’s dollar for retirement security better. Everybody would now be covered” if the plan were adopted, Ghilarducci said.

Her proposal, which she calls “Guaranteed Retirement Accounts,” sounds a little like Obama’s health care plan – if you had a retirement plan you liked, you could keep it; if you didn’t, you would contribute to a defined-benefit plan that would be managed by the same folks who manage Social Security (and your money’d be invested safely in government bonds, not the stock market).

Most people are not the growth-chasing risk-takers that the existing 401(k) scheme assumes they are; I bet many people would prefer the safety of this plan over playing the market, even if they didn't get a tax-advantaged employer match. (Some people haven’t even realized that playing the market is what they’ve been doing – until they opened this quarter’s statements, anyway.) And what a great deal for all the people who had no 401(k) at all who’d now be covered!

Also, I’m happy that the proposal doesn’t involve replacing Social Security. In my opinion, Social Security is supposed to be an insurance program, not a retirement savings program, and should remain so. If it needs any changes (which is a debate beyond the scope of this post) those changes needn't be radical. Full disclosure: I was a recipient of Social Security survivor’s benefits after my dad died when I was 16; I most likely would never have finished my undergrad degree without them, and my life would have been very different.

Anyway, interesting that this proposal seemed to just appear out of nowhere and found traction in the House. I’m going to have to get my hands on a copy of Dr. Ghilarducci’s book.

Speaking of interesting thinkers, I am wildly excited about this conference that I’ll be attending at the end of next week. I plan to blog about it while I’m there. If you are anywhere near Amherst, Massachusetts next week and you’re anywhere near as big a fan of Nancy Folbre, Joan Williams, Heather Boushey, and Ellen Galinsky as I am, you must check this out: www.umass.edu/family/womenandwork/index.htm. 

12:27 am | 0 recommendations | Be the first to comment

Obama Campaign Offers Substance on Work-Life Issues

It’s pledge week at Minnesota Public Radio, a time when often they’ll re-run snippets of recent great programming in between shameless begging for money. This morning Kerri Miller’s intellectually chewy daily talkfest Midmorning featured live guests in the first hour, but the second hour featured a kind of virtual sparring between media heavyweights on the topic of advocacy journalism.

Miller aired encore excerpts of her live reporting from this year’s Democratic National Convention in which she asked two of her interviewees, Jim Lehrer and Tom Brokaw, about their views on media personalities who venture beyond news into unabashed commentary. Lehrer thought that delivery of a point of view mixed in with the content was something of a dying fad, commanding a smaller slice of audience than PBS does. Brokaw, on the other hand, took what he called the “Tom Paine” perspective, and argued that there’s room for both straight news and opinion-laced commentary. He believes that the audience can easily tell which one is which; he said they know what they’re going to get when they turn on Chris Matthews or Keith Olbermann just as easily as they can distinguish between the news sections and the op-ed features in their daily newspaper.

I’m with Brokaw on this one. Case in point – a piece reported by CCH HR Management that cried out for Olbermann-style treatment. Its author, without any pretense of analysis, basically cribbed the work-related policies right off the Obama and McCain websites, without even bothering to unslant the original language. That lent the piece a somewhat surreal effect, whipsawing from invocations of “worker’s rights” and “a living wage” in one half to an almost mantra-like repetition of the word “competitive” in the other. And then it just … quit. Informative as far as it goes – I was glad to see it – but in its “on the one hand, on the other hand” fashion, it treated the two sets of policies as just two different but equally substantive platforms. “No spin,” said the lead paragraph, “– we’ll leave that to the pundits.”

Fortunately, there are pundits who are glad to oblige.

BlogHer Political Director Morra Aarons-Mele had this great post on Huffington Post last week. She listened in on the Families and Work Institute conference call with representatives from the Obama and McCain campaigns talking about the candidates’ work-life policies. Aarons-Mele gave examples straight from the transcript of the call, including Obama initiatives on:

• early childhood education
• expanding the FMLA to cover more people and provide paid leave
• equal pay and protections against family responsibilities discrimination
• pegging the minimum wage to inflation and expanding the EITC
• paid sick leave
• promoting telecommuting
• enacting a “right to request” flexible work along the lines of the UK’s law

She also described the McCain camp’s much vaguer proposals (e.g., forming a “commission” on “workplace flexibility and choice”), and then she added her analysis, which I thought was spot-on:

In sum, reading the call transcripts I'm left with the same questions I usually am about our candidates. McCain, the fake supporter of the middle class, says he supports the issues most important to families but I don't see it in his team's answers. Obama has fantastic ideas for work and family in this country; the main question is whether the bankrupt government he would inherit, and its accompanying politics, can accomplish such goals.

There's more to Aarons-Mele's analysis, and I recommend it. In my opinion, doing what CCH did - offering "on the one hand, on the other" without any weighing of whether the proposals are substantive or just puffery - is itself spin, because it creates a false equivalence between proposals that are genuinely innovative and useful and those that are just the same old talking points we've heard before.

06:12 pm | 0 recommendations | Be the first to comment

Cheering as my Roth IRA sags

World at Work has a nice definition of work-life that I really like. They define it broadly and include "community involvement" in their definition.

So although it may be a bit of a stretch, I do think this fits under the "community involvement" aspect of work-life.

The day I first posted this was the day that the first version of the Wall Street bailout plan went down to defeat in Congress. 

One of Fast Company's "Fast Talk" questions that day was:

How concerned are you about the long-term value of your 401k plan?

Here's how I answered it:

I couldn't be more delighted that the ordinary Joes and Janes of this country finally stood up and roared, and if it cost me a little bit of retirement income in the long run, it was worth every dime to see this day. A fine day for democracy. What the folks in Washington and New York don't understand is that most Main Street folks don't have much, if anything, in the stock market and so they don't care if it drops like a stone. Tight credit and a bleak job market? How would that be different from what they're experiencing already?

I don't have a 401k, just a Roth IRA. And sure, I realize that my index fund probably dropped a chunk today, but I've been gradually rebalancing away from it and into TIPS for several years now to accomodate my low tolerance for risk. I didn't trust this administration eight years ago and I don't trust them now. I sure don't trust them to do economic surgery with $700 B of our money and no strings attached.

Here's a modest proposal: instead of $700 B cash for trash, why not use that money to forgive every student loan in the country? Giving the younger generation that boost to cash flow would goose housing prices for sure. Then maybe less of the bad paper would be under water.
Besides, any bill that unites Representatives Michele Bachmann, Steve King, Tim Walz, and Dennis Kucinich in opposition has got to be a really bad idea.