RALEIGH — In February, the U.S. Treasury and Labor departments jointly announced they were seeking public comment on proposed design changes to employer-sponsored 401(k) plans and individual retirement accounts that would centralize the private pension system under structures created and administered by the government.
Supporters say these changes are needed to ensure Americans save more for their retirement and have lifetime income options that prevent them from outliving their retirement savings, protecting them from market risk.
At stake for the millions of Americans with private retirement plans: Would they be able to continue making their own investment decisions? Or would Congress mandate both investment options and distribution methods? Government Retirement Accounts also would prevent workers from owning their retirement savings fully, as they could bequeath only half of their remaining account balances to their heirs.
Government officials, labor unions, and some industry groups favor GRAs and mandatory annuitization. Under the proposal being discussed, workers and companies alike would contribute a minimum of 2.5 percent of pay, up to the Social Security earnings cap, to their GRA. In return, workers would be guaranteed a 3 percent return on their investment. This system would not replace Social Security, forcing workers to contribute to both systems.
According to the Department of Labor, 61 percent of all private-sector workers and 71 percent of all full-time private-sector workers had access to an employer-provided retirement plan in 2008, and another 47 million households currently participate in IRAs. Proponents of a government takeover of the private pension system say the housing and financial crises have jeopardized retirement security and left Americans less trusting of the financial system.
However, a survey conducted in fall 2008, even as the financial crisis was unfolding, found strong support for the current system. The Investment Company Institute, a national association of U.S. investment companies that manage about 50 percent of the nation’s 401(k), 403(b), and IRA assets, surveyed 3,000 households and reported nearly nine of 10 rejected the idea that government, not individuals, should make retirement investment decisions. Even households without a 401(k) or IRA did not see a need for drastic changes to the private system.
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