Should the government force workers to save more?

Companies don't want to fund traditional pensions for their hourly and salaried workers. But workers don't know how to invest -- they don't save enough, and they lost an estimated $2 trillion, combined, from 401(k), 403(b) and IRA plans, in the bear market. So Congress is weighing how to reform the retirement investment industry -- and whether to add a guaranteed, forced-savings plan, so retired workers don't have to live on Social Security alone.

"For too many Americans, 401(k) plans have become little more than a high-stakes crap shoot... We are realizing that Wall Street's guarantees of predictable benefits and peace of mind throughout retirement was nothing more than a hollow promise," US Rep Rep. George Miller, D-Calif., said at a hearing of his House Education and Labor Committee today. He called for clearer, lower retirement plan fees -- and asked if we also need "a new leg of retirement security."

Retired Vanguard Group founder John C. Bogle used the hearing to blast his old competitors and blame their high fees for the "serious train wreck" due to "phantom wealth" in the stock market, caused by "greedy financiers" exploiting a "mostly innocent public." His solutions aren't so radical: Bogle wants a simpler defined-contribution plan invested in "all-market index funds," bonds, and "simple low-cost annuities." The kind of program Vanguard might run.

Pension scholars Alicia H. Munnell of Boston College and Dean Baker of the Center for Economic Policy Research pushed for versions of a forced-savings plan. That left mutual fund lobbyist Paul Schott of the Investment Company Institute to defend the existing 401(k) system: "This isn't the time to abandon ship... Participants who cash out of the market right now will lock in their losses..." But even he agreed on the need for more "transparency".

Posted by Joseph N. DiStefano @ 3:52 PM Permalink | 2 comments

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0 like this / 0 don't • Posted 1:25 PM, 05/12/2009

Communism coming to America real soon.

— randy7676

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About Joseph N. DiStefano

Joseph N. DiStefano writes this blog to feed his PhillyDeals column in the Philadelphia Inquirer. Joe has been a member of Bloomberg LP’s New York Finance Team, wrote the book “Comcasted,” taught writing at St. Joseph’s University, and studied economics and history at Penn. Reach Joe at 215-854-5194 and JoeD@phillynews.com