White House Likes Ghilarducci Rx For Savings

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--Stan Wilson

For the first time, high-ranking elements of the Obama Administration have endorsed Prof. Teresa Ghilarducci 's controversial plan to create a new hybrid retirement savings vehicle offering workers a guaranteed return on investment. A recently released report by the White House Task Force on the Middle Class, headed by Vice President Joe Biden, favorably describes the advantages of Ghilarducci's "Guaranteed Retirement Accounts" approach and recommends that GRAs get "further study." Ghilarducci herself proposed that the cost of guaranteeing all the covered employees' investments should be paid for by terminating 401(k) tax incentives, but the administration task force is silent on how the GRA guarantees might be financed. A call to the White House press office was not returned.

Any move by the Obama Administration toward the GRA retirement saving model would be a major initiative, dwarfing all its other policy proposals in the retirement sector. "The point is cost," said K&L Gates partner William Schmidt . "There is no data on what it would be." The annual Treasury revenue loss resulting from 401(k) is in excess of $120 billion, which Ghilarducci, director of the Schwartz Center for Economic Policy Analysis in New York, says is subsidizing the savings of the rich rather than the poor. House Ways and Means Committee Democrats have asked the Government Accountability Office to find out who does benefit from the 401(k) shelter.

Outsiders in close touch with the internal Obama Administration discussion about the problems impeding workers' retirement saving contended last week that the more conservative policy makers on the president's team have little enthusiasm for GRAs. It was also noted that if GRAs got to head the administration's agenda, they would be at cross purposes with previous Obama plans rooted in the status quo, like auto-IRA and a refundable savers credit. It would be illogical for Congress to enact legislation going in both directions.

But among the many views contending for the president's ear there is a strong concern in some quarters not only about how little money is saved for old age, but how it can be swept away in events like the 2008 financial crisis. In the words of the task force, "these [GRAs] would allow workers to be sure that the funds invested in them will grow steadily without the risk of a market collapse." Investment risk was also on the mind of Labor Deputy Secretary Seth Harris , in public comments he made about searching for a hybrid to replace the all-but-defunct DB pension. He said he worried about shifting investment risk to the worker (as 401(k) does) and said it was a "very delicate balancing act, where to assign risk." The remarks in the task force report could not have been issued without the concurrence of Obama's own staff.

Ghilarducci was travelling last week and could not be reached. A press aide for DOL said it deferred to the White House in commenting on these matters.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 Institutional Investor

This article appears in: Financial Advisor Center

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