[PEN-L:31608] retirment plan bandaids?

["Ian Murray" <seamus2001@xxxxxxxxx>]

washingtonpost.com
Straw Men Don't Solve Retirement Risk
By Albert B. Crenshaw
Sunday, October 27, 2002; Page H04

You've heard of closing the barn door after the horse has been stolen?

The Labor Department is closing the barn door when there was no horse.

Last week, department officials published tough new rules to protect workers
when their 401(k) plans are frozen, or "blacked out," by their employers.
The chances that these rules will actually help anybody are vanishingly
small.

This has been the pattern so far from the Bush administration and Congress
when it comes to problems in the nation's retirement system: making much ado
about "solutions" that do very little. In addition to the blackout rules --
which implement a peripheral provision of the corporate accountability law
written by Sen. Paul S. Sarbanes (D-Md.) and Rep. Michael G. Oxley (R-Ohio)
that passed Congress overwhelmingly this summer -- other proposals of this
ilk include several to extend the age deadline for making withdrawals from
individual retirement accounts.

"Reforms" that don't do much generally don't meet much opposition, so they
are easy to pass. Then they can be taken home to be fobbed off on the voters
as progress.

But the real problem with the nation's retirement income system is that it
now depends to a great extent on workers' assuming all the risks -- the
risks of poor investment choices, the risks of market or economic downturns,
the risks of outliving their money.

Meaningful reforms would involve moving some of these risks back to
employers, who are much better equipped to handle them. Employers can hire
the professional money managers and actuaries they need to give them the
best chance possible of meeting the retirement needs of their staff.

Of course, as we have seen recently, even these experts can't always get it
right. A number of big companies that still offer traditional pensions --
the kind where the company puts up the money and takes the risk -- are
wailing about the blow their now-underfunded plans will strike to their
bottom lines. Those firms that have unloaded such risks onto their workers
obviously don't want those risks back, and they are letting Congress and the
administration know that in no uncertain terms.

So the policy -- government and corporate -- is, if the risks are too great
for the pros, let's leave them to the amateurs. Meantime, we'll protect them
from 401(k) blackouts.

A blackout typically occurs when a retirement plan changes record keepers or
investment advisers, or makes other administrative changes. Workers cannot
shift their investments, change their allocations or make other transactions
in their accounts while this is going on.

Blackouts are not uncommon. While an individual plan probably would not have
more than one or two over the years, there are many, many plans and
collectively they have had thousands of blackouts.

But over the years, experts say, there has been only one serious problem
with a blackout: Enron.

As its stock was in its final death dive in the fall of 2000, the giant
energy company froze its 401(k) plan to transfer its records to another
administrator. This prevented participants from bailing out -- even though
Enron executives were dumping their stock and stock options for cash.

The new law and rules will prevent that. Plans will have to give workers 30
days' notice of an impending blackout, and plan trustees will have to notify
the company formally about the blackout so executives can't say they didn't
know about it. This is important because there will also be a rule,
currently being drawn up by the Securities and Exchange Commission, to bar
executives from selling stock or options during a blackout.

There's an election coming up, and while retirement is a long way off for
many of us, beginning to deal with it now could be of great benefit. Check
on your candidates' views on this issue, and what their thoughts are -- if
they have any.

The top 1 percent of tax filers paid 37.42 percent of all federal personal
income taxes in 2000, and the top 50 percent paid 96.09 percent of all such
taxes, according to the Internal Revenue Service.

The bottom half of the taxpaying public paid 3.91 percent of all federal
personal income taxes in 2000, the most recent year for which such figures
are available, according to Rep. Jim Saxton (R-N.J.), chairman of Congress's
Joint Economic Committee, which put out the numbers last week. (See
accompanying table.)

Saxton pointed to the figures as evidence of what he called the "steeply
progressive impact of the federal income tax." Saxton and other Republicans
have been hammered by Democrats as seeking tax cuts that disproportionately
benefit upper-income taxpayers, and Saxton wants voters to understand that
it's hard to do otherwise when upper-income taxpayers pay almost all the
taxes in the first place.

"These data must be considered before any valid distributional evaluation of
various income tax proposals can be made," Saxton said. "Unfortunately,
statistics portraying tax-policy changes as skewed often are released
without disclosing the share of taxes actually paid by various income
groups."

Of course, the data, which don't reflect the impact of the 2001 tax-cut
bill, also suggest that well-to-do taxpayers receive a vastly
disproportionate share of the nation's income, a situation some find
lamentable. Also, federal personal income taxes are hardly the only ones
paid by Americans, and federal payroll, fuel and other taxes, along with
state and local sales taxes, do much to offset the progressiveness in the
income tax system.

D.C. Council member Carol Schwartz (R-At Large), an original opponent of a
provision in the city's budget to begin taxing interest income from
municipal bonds issued by other jurisdictions, said last week that she has
figured out where to get the money that would be needed to balance the
budget if the bond tax were dropped.

The tax has sparked heated protests from many retirees and other city
residents.

Schwartz, a mayoral candidate, said the city could use $10.2 million in
rights-of-way fees left over in a water authority reserve account. The money
has been "sitting in this . . . reserve account for more than a year
awaiting a release," she said.

If left in place, the bond tax would raise $6.6 million in fiscal 2003,
revenue estimators say.

Assets of exchange-traded funds totaled $82.26 billion last month, down from
$91.3 billion in August and $83 billion at the end of last year, according
to the Investment Company Institute, a trade group. An exchange-traded fund
is one with shares that trade on stock exchanges at market-determined prices
rather than the net asset value of their underlying holdings.