Rush Limbaugh claimed that Sens. Tom Harkin (D-IA) and Bernie Sanders (I-VT) have a “proposal” to eliminate 401(k)s in favor of a retirement plan administered by the government. In fact, they have not made such a proposal. Rather, the idea of guaranteed retirement accounts -- which was distorted by Limbaugh -- was mentioned by a panelist from the Economic Policy Institute during a hearing held by Harkin and Sanders on retirement security issues.
Limbaugh claims that “the Democrat Party” is proposing to “outlaw your 401(k) plan”
Limbaugh: “The GRA proposal from Harkin and Sanders is ... to force America to stop putting their money into private 401(k) accounts.” During the November 1 edition of his radio show, Limbaugh cited a Washington Examiner column by Mark Hemingway and claimed that Democrats are “talking about eliminating 401(k)s.” Limbaugh further stated: “The GRA proposal from Harkin and Sanders is simple -- to force America to stop putting their money into private 401(k) accounts and to send the money to the government instead -- the GRA which is again, the Guaranteed Retirement Account”:
LIMBAUGH: I talked about this weeks ago - maybe even months ago when Tom dumb dung heap Harkin proposed this. Now before you continue Alicia, let me refer to you what she is talking about. It is Mark Hemingway, The Washington Examiner, “Will the Government Outlaw Your 401(k)?” It seems like an absurd possibility, yet earlier this month, two Democrat Senators, Tom Harkin, Iowa, Bernie Sanders, Vermont, held a hearing on Capitol Hill exploring the possibility of doing just that. On October 8, the two senators from the Health, Education, Labor and Pensions Committee held a hearing on retirement security in America. And among the proposals discussed was guaranteed retirement accounts -- GRAs. The purpose of the GRA proposal is simple -- to force Americans to stop putting retirement savings money into 401Ks and send the money to government instead.
Now this has been in the works for a long time. And I remember the first time I mentioned this on the program, Alicia. We were deluged with calls from Washington types -- “No, no, no you totally misunderstand. Nobody in the Democrat Party is talking about eliminating 401(k)s.” And they are.
LIMBAUGH: The GRA proposal from Harkin and Sanders is simple -- to force America to stop putting their retirement savings money into private 401(k) accounts and send the money to the government instead -- the GRA which is again, the Guaranteed Retirement Account. Turn your 401(k) into a Guaranteed Retirement Account. The GRAs would eliminate the favorable tax treatment currently afforded to 401(k) plans. What this is rooted in is eliminating the tax deduction that you get for the contribution to your 401(k). The Democrats think it's costing the government money. Now, they came up with this idea, the 401(k) plan, but now it is costing them money so they are going to get rid of it. You are allowed to put a certain percentage of your gross into your 401(k) without taxes on it -- provided you don't withdraw it early. They want to eliminate this. They want to take the money away from you, eliminate the tax deduction for future contributions and give you back two percent interest on what you've got. That's essentially what it is.
In fact, the senators did not propose or endorse a Guaranteed Retirement Account plan
Limbaugh's claim appears to be based on the fact that the idea was mentioned by a panelist at a committee hearing. During the segment Limbaugh cited a Washington Examiner column by Mark Hemingway, which based its fearmongering about the “government outlaw[ing] your 401(k) plan” on the claim that “earlier this month two Democratic senators, Sen. Tom Harkin, D-Iowa, and Sen. Bernie Sanders, I-Vt., held a hearing on Capitol Hill exploring the possibility of doing exactly that.” Hemingway further wrote:
On Oct. 8, the two senators from the Health, Education, Labor and Pensions (HELP) Committee held a hearing on “Retirement (In)security in America.” Among the proposals discussed was “Guaranteed Retirement Accounts,” or GRAs.
The hearing was on retirement insecurity, not on any specific proposal. On October 7 the Senate Committee on Health Education Labor and Pensions held a hearing titled, “The Wobbly Stool: Retirement (In)security in America.” Introducing the hearing, Harkin stated:
I want to welcome everyone to this hearing on retirement security, what's happening to retirement in America today and in the future. This is an issue that is of critical importance to every American family.
A recent survey found that 92 percent of adults aged 44 to 75 believe there's a retirement crisis in America. Are they right? Is there a retirement crisis?
Four panelists participated in the hearing, which covered retirement insecurity, its causes and effects, and the importance of Social Security, contrary to Hemingway's and Limbaugh's suggestion that the hearing was about “exploring the possibility” of “outlaw[ing] your 401(k) plan.”
Neither Harkin nor Sanders discussed the GRA idea during the hearing. In 34 pages of Nexis transcripts, the only point at which Guaranteed Retirement Accounts were mentioned was when panelist Ross Eisenbrey, Vice President of the Economic Policy Institute stated:
I would turn these completely upside-down. I'm actually in favor of a mandatory retirement system with subsidies from the federal government. And -- and I've mentioned that the guaranteed retirement account that Teresa Ghilarducci authored is, I think, an excellent way to solve this problem going forward.
But short of that, others have suggested changing the tax deductibility of 401(k)s, turning it into a tax credit, making it a refundable tax credit, so that the government is helping the people who need help the most to save, and -- and -- and, you know, not just helping wealthy people move their savings from a savings account to a tax-favored savings account.
(Eisenbrey also briefly discussed the proposal in his written testimony.) There was no further discussion of GRAs and neither Harkin nor Sanders responded to the idea in the hearing.
Guaranteed retirement accounts have not been included in legislation. Republicans have previously fear-mongered about GRAs following a 2008 hearing when the idea was proposed by a panelist. In April 2009 Politifact.com stated that the idea “doesn't have any significant support in Congress that we could find.” After Republicans revived the claim again in 2010, the San Francisco Chronicle reported on May 13 that Aaron Albright, press secretary for the House Committee on Education and Labor said the proposal was “never included in any legislation.”
Moreover, the GRA plan proposed by the Economic Policy Institute does not take away money already saved in 401(k)s
Limbaugh claimed that the GRA proposal seeks to “take the money away from you,” and “get rid of” 401(k)s because they are “costing the government money.” From Limbaugh's show:
LIMBAUGH: The GRA proposal from Harkin and Sanders is simple -- to force America to stop putting their retirement savings money into private 401(k) accounts and send the money to the government instead -- the GRA which is again, the Guaranteed Retirement Account. Turn your 401(k) into a Guaranteed Retirement Account. The GRAs would eliminate the favorable tax treatment currently afforded to 401(k) plans. What this is rooted in is eliminating the tax deduction that you get for the contribution to your 401(k). The Democrats think it's costing the government money. Now, they came up with this idea,the 401(k) plan, but now it is costing them money so they are going to get rid of it. You are allowed to put a certain percentage of your gross into your 401(k) without taxes on it -- provided you don't withdraw it early. They want to eliminate this. They want to take the money away from you, eliminate the tax deduction for future contributions and give you back two percent interest on what you've got. That's essentially what it is.
GRAs envisioned by EPI's Ghilarducci in order to increase “retirement security.” Guaranteed retirement accounts have been proposed by labor economist Teresa Ghilarducci, who is on the board of directors for the Economic Policy Institute. In a November 2007 briefing paper on the proposal, Ghilarducci advocated the creation of a system of guaranteed retirement accounts administered by the government with participants earning “a fixed 3% rate of return adjusted for inflation” From the paper:
America's pensions are broken -- tax breaks for retirement plans are at an all-time high, while pension coverage has not budged in 30 years. Most Americans have less retirement income security than they did a generation ago. However, taxpayers' subsidies for the 401(k) plans of the wealthiest Americans just keep growing. Tax breaks for 401(k) plans amounted to $110 billion in 2006, most of which went to households in the top tax brackets. Not only do these tax breaks go to those who need them the least, they do not cause the savings rates to increase.
The GRA plan calls for all workers not enrolled in an equivalent defined-benefit pension to enroll in a Guaranteed Retirement Account. Employers and employees pay a total of 5% of pay, which will earn a guaranteed and inflation-protected rate of return. These funds will be converted to life annuities upon retirement. Most people's contributions will be paid by the federal government with a $600 tax credit. This plan pays for itself--it will not increase the federal deficit or require a tax increase--by eliminating all tax deductions for contributions to 401(k) plans. Defined-benefit plans keep their tax-favored status. The GRAs are administered by the Social Security system eliminating all individual account management fees.
FactCheck.org: “Nobody we know of is proposing” that the government “seize” retirement assets already saved in 401(k)s or IRAs. When conservative media fear-mongered about the Ghilarducci's proposal in 2008, FactCheck.org debunked the claim that the plan would take away people's retirement savings. FactCheck.org stated that Ghilarducci's proposal is “a far cry from proposing that the government seize retirement assets that investors have already salted away in 401(k)s or IRAs. Nobody we know of is proposing anything like that.”
401(k)s would not be abolished under Ghilarducci's plan, and tax preference would continue for amounts already contributed to 401(k)s. Contrary to Limbaugh's claim that the plan eliminates the tax break for 401(k)s because “it is costing them money,” the plan would shift the current tax breaks for “401(k)s and similar individual accounts” to a "$600 refundable tax credit" for contributions to GRAs. Ghilarducci argues that the current subsidy for 401(k)s is not fairly distributed and have not increased retirement security. However, the paper states that 401(k)s and IRA's would “not be abolished”:
These plans will not be abolished, but under the Guaranteed Retirement Account plan additional contributions will no longer be tax exempt. We expect that many 401(k) plans will survive because high-income employees appreciate the automatic savings feature and the possibility of an employer match. Accumulations in 401(k) plans and other retirement plans that exist before the bill goes into effect will be treated under the old tax rules.
Workers already covered by a defined-benefit pensions would not have to participate. Ghilarducci states that “Participation in the program is mandatory except for workers participating in equivalent or better employer defined-benefit plans where contributions are at least 5% of earnings and benefits take the form of life annuities.” The paper further states:
Recognizing the valuable productivity-enhancing features of defined-benefit pensions, these will be allowed to substitute for a contribution into a worker's GRA. A qualified defined-benefit pension is one in which the plan sponsor contributes 5% of payroll per year, so sponsors who make sporadic and uneven contributions will not qualify. Hybrid plans like cash-balance plans (which technically are classified as defined-benefit plans) are also exempt as long as contributions are at least 5% per year and retirement income is guaranteed for life (not paid out in a lump sum).