Rush Limbaugh’s plot to keep us from fixing retirement

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The American system of retirement saving is in big trouble. Not so much Social Security: That has some long-term funding issues, but they are–actuarily, if not politically–easily fixable. The big problems are with workplace pensions and retirement accounts.

As everybody knows, the corporate pension system that evolved after World War II is on its last legs. Its replacement, the 401(k), just isn’t very good. It has improved some over the past couple of years, as many companies have taken the lessons of behavioral economics to heart and rejiggered their 401(k)s to encourage more saving and more rational asset allocation. Congress passed legislation in 2006, sponsored by noted leftist agitator John Boehner, encouraging them to do just that. But 401(k)s still leave individuals extremely exposed to market swings–as we’ve relearned over the past couple months–and huge segments of the American workforce either don’t take full advantage of 401(k)s or don’t even have access to them.

So there’s the been lots of talk in the retirement wonkosphere over the past few years about the need to do something more. One suggestion I’ve heard repeatedly is that we should create some sort of new retirement savings account–a universal IRA, you might call it. You could choose to opt out of, but if you don’t opt out it siphons a portion of your wages every year and tops it off with a government subsidy. Barack Obama included such accounts in his campaign platform, but I first heard the idea from Republican economist Marty Feldstein, so it has pretty broad bipartisan support.

These accounts would insure that all American workers have some sort of retirement savings, but they’d still suffer from the existing flaw of 401ks and IRAs in that they would subject individuals to an awful lot of market risk. They’d also cost a bunch of money, which would have to come from somewhere.

Enter Teresa Ghilarducci, an economics professor at the New School for Social Research in New York. Last spring she came out with a book, When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them, that outlined a related but crucially different approach: There’d be a new system of retirement accounts, but it would be modeled not on the IRA but on TIAA-CREF, the retirement plan for college professors, which guarantees a 3% annual return but usually pays out more. There’d be a government-run version, but workers could also opt for private plans that meet certain standards. To pay for all this, we’d ditch the current tax deduction for 401(k)s and IRAs, the benefits of which go mostly to the top 10-15% of the income distribution. It’s a pretty radical plan, and I’m not sure I agree with it. But it addresses a problem that is very real–and got a lot realer when the stock market started plummeting in September.

Ghilarducci’s book didn’t get much attention when it came out. In early October, though, she testified before the House Committee on Education and Labor, outlining her plan and also an emergency proposal that would allow workers to trade in their decimated 401(k)s right now for a guaranteed retirement account. Rush Limbaugh soon picked up on this, flogging it repeatedly on his show as a Democratic plot to steal your 401(k). That meme has lived on in the rightwingosphere, and today it arrived on the editorial page of the Wall Street Journal. The WSJ editorialistas write:

You may have heard about Argentina’s plan to nationalize private retirement accounts. Some Democrats on Capitol Hill are inspired, and with their big election victory they may get the chance to test Peronist ideas in America.

Meet Congressmen George Miller and Jim McDermott, who are eager to change the way Americans save for their golden years. They’ll also be powerbrokers in the next Congress. Mr. Miller, who came in with the Class of 1974 from California, chairs the House Education and Labor Committee. Mr. McDermott, who has represented Seattle the past two decades, runs a House Ways and Means subcommittee on income security and family support.

Before Election Day, the Congressmen began to target the $3 trillion in 401(k) accounts held by about 60% of Americans. Mr. Miller called the system “an inadequate vehicle” that “has not been terribly successful” in encouraging retirement savings. He wants a “wholesale re-examination” of pensions. …

It goes on like that, complete with a tendentious description of Ghilarducci’s proposal, a grudging acknowledgement that no Democratic congressional leaders have actually endorsed it, a snotty reference to behavioral economics (in the person of UCLA’s Shlomo Benartzi), and the bizarre claim that corporate pensions have given way to 401(k)s because that’s what American workers wanted. Nowhere is there any acknowledgment that pretty much everybody in the pension world agrees that 401(k)s are deeply flawed, in that they are failing to provide retirement security for most Americans.

You got a solution for that, WSJ? Oh, I see (in the last paragraph of the editorial): “removing barriers to economic growth.” Okay, we’ve spent the past three decades removing what the WSJ editorial page deemed barriers to growth (some of which actually were barriers to growth), and by most measures retirement security has declined over that period. Got another idea? No, I didn’t think so.