House Democrat George Miller is calling for a soup-to-nuts re-examination of 401(k) plans in light of dramatic investment losses this year that could lead to a radical overhaul of the popular defined contribution plans.
One proposal under consideration would eliminate the tax-favored treatment of contributions to 401(k) plans and individual retirement accounts; instead, workers would receive a $600 tax credit that would offset contributions to a new mandatory guaranteed plan that would be managed and administered by the federal government. Another proposal would extend 401(k) plans to all workers.
“Maybe we are at a time where fiddling at the margins is not going to serve the American people,” Mr. Miller, D-Calif., said at a House Education and Labor Committee hearing in San Francisco on Oct. 22.
Meanwhile, in a little-noticed policy plank, Democratic presidential candidate Barack Obama is calling for much greater disclosure of defined benefit investments to plan participants — including revealing “probable future investments” by these plans (See related story).
While retirement income policy has been largely ignored during the election campaign — except for calls by Sen. Obama, D-Ill., and Sen. John McCain, R-Ariz., to loosen access to 401(k) accounts and expand coverage of workers without plans — these new proposals could lead to sweeping changes for U.S. corporate retirement policy.
Major losses in retirement savings are spurring Mr. Miller's effort to consider rewriting the ground rules for 401(k) plans. At the San Francisco hearing, Mr. Miller said a more comprehensive legislative review is required because 401(k) plans and IRAs collectively had lost $2 trillion from equities alone in the year ended Oct. 9, according to new paper by Alicia Munnell, director of the Center for Retirement Research at Boston College. Ms. Munnell also estimated that defined benefit plans experienced $1.9 trillion in stock losses during that time.
“This requires a wholesale re-examination,” Mr. Miller, the influential chairman of the committee, said at the hearing.