Coming on the heels of The Wall Street Journal’s exposé on supposed 401k founder regrets, New School for Social Research professor Teresa Ghilarducci is once again pitching government-mandated Guaranteed Retirement Accounts.
Ghilarducci told CNBC she has shared the idea, which she first developed with Blackstone Group’s Tony James, with officials from President-elect Donald Trump’s transaction team, and said she thinks the plan could garner bipartisan support.
“We’ve been trying to fix the 401k system [and] the IRA system and we have concluded it can’t be fixed,” she bluntly told the network.
Calling retirement the No. 1 priority for many of Trump’s voters, she called it a “Nixon-goes-to-China moment for Trump.”
Ghilarducci has previously called the 401k and its alleged shortcomings an “immature, underdeveloped child,” and that “we’re picking up the toddler, and helping [it] over the puddle and to the curb.” Her idea is an improvement on the 401k system, which “isn’t close to being what’s needed.”
She added that there’s “no indication that the 401(k) will ever include everyone, reduce fees to where they are appropriate, match long-term investing with long-term needs or provide fully for lifetime income. We need something that’s mandatory, with no leakage, and that’s what this is.”
“Under our proposal, all workers and employers will have to make regular payments into a Guaranteed Retirement Account, which builds until retirement age, then pays out a supplemental stream of income until that person and his or her beneficiary die,” she and James wrote in The New York Times at this time last year.
“In our plan, the more than 95 million workers without a pension plan would each have his or her own G.R.A. managed by an independent federal agency. Workers and employers would each contribute a mandatory minimum of 1.5 percent of the salary or contract. The current tax deduction for retirement savings would be converted to a $600 refundable tax credit to pay for the contributions of households below median income.”
Workers could not withdraw money early, they add, even for emergencies — “and they won’t like that,” but allowing for exceptions creates a “slippery slope.”
“Just as Social Security is protected from early withdrawal, retirement accounts should be used for old-age income,” they concluded. “Employers won’t like paying more. But in return, they are free from administrating and worrying about providing retirement plans if they don’t offer a 401(k) or pension. In the long run, employers would benefit because a nation of financially secure retirees would pre-empt higher corporate taxes.”