Assorted links

by on January 30, 2014 at 11:55 am in Uncategorized | Permalink

1 Brian Donohue January 30, 2014 at 12:15 pm

#4. Projected impact: nil.

And thank God. Because, it seems to me that investing retirement assets 100% in the “Government Securities Investment Fund” is a design feature of monumental stupidity.

And of course it would do nothing to address this, Mr. President: “…while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)’s.”

100% unadulterated feel good window dressing.

2 Vivian Darkbloom January 30, 2014 at 12:54 pm

I agree it’s a bad vehicle for retirement investors, but what a clever way to finance his deficits.

3 Brian Donohue January 30, 2014 at 1:10 pm

Heh. Retirement policy provides a window on the crazy budget process.

1. In 2012, pension sponsors got ‘relief’ from impending high required contributions. Since pension contributions are deductible, this scores as a ‘revenue raiser”.
2. Pension sponsors pay premiums to an outfit called the PBGC, sort of like an FDIC for pension plans that go bust. These premium rates have been cranked up multiple times in the past few years, which also scores as a “revenue raiser”.
3. But, higher premiums provide a strong incentive for employers to fund up pension shortfalls. Maybe a good outcome, but this cuts into any increased revenue associated with deferring pension contributions, and it also cuts into any premiums assessed against underfunded plans. So, in all likelihood, actual revenue associated with funding relief and higher premiums will be a drop in the bucket compared to how these things were scored.
4. But that’s OK, since the money was already spent on guns or something.

This is my small window on the world. I can only imagine the budgeting process is shot through with these kind of shenanigans.

4 JWatts January 30, 2014 at 3:22 pm

“100% unadulterated feel good window dressing.”

Yes, this is absolutely a do nothing plan that will do nothing, probably have a minuscule amount of contributors beyond the first couple of years and will probably cost more to administer for the Federal Government than any benefit it would provide.

5 dan1111 January 31, 2014 at 6:59 am

A do-nothing plan is often better than a do-something plan.

6 gabby's awesome January 30, 2014 at 12:16 pm
7 Alexei Sadeski January 30, 2014 at 10:35 pm

No Buffett?

8 Jane the Actuary January 30, 2014 at 12:44 pm

Besides the monumental stupidity of a retirement savings vehicle consisting of government bonds, the “myRA” is a complete abandonment of any kind of bipartisanship. Various simplified “IRA via payroll deduction” proposals have been floated over the years, with bipartisan approval of the concept. This is something where legislation should be doable, not herculean, and produce a much better product.

9 Michael January 30, 2014 at 5:06 pm

Yeah, the one thing that still has me scratching my head is where is the legal authority to create this program? I honestly don’t mean that as a hyper-partisan, “king obama” rant, that is a genuine question, how are they “just creating” this within Treasury? This has to be just a rebranding/extension of something that already exists, right?

10 msgkings January 30, 2014 at 9:35 pm

I think it’s pretty clear it’s just an extension of the ‘IRA’ concept. You had IRAs, then other versions came into being like SEP IRAs, Roth IRAs, Simple IRAs, so this is one more iteration. But if I recall all those others were created by Congress. So maybe this was just him saying ‘hey Congress do this?’ because it’s a pretty harmless, nonpartisan kind of move. It may not do much but I can’t think of many reasons to not create a simpler IRA for lower income folks.

11 Z January 30, 2014 at 1:35 pm

#4: This idea has been kicking around for a long time. The government class has been drooling over the trillions in private investment since the 1990’s. In other countries, the state has an easier time seizing retirement funds. In the US, it is not possible without shooting people. Therefore they have to come up with a trick so people voluntarily put their neck in the noose. I would not be too quick to dismiss it. They have to come up with some way to finance the deficits.

12 JWatts January 30, 2014 at 3:28 pm

Hmmm, maybe they’ll have an advertising campaign involving young students doing a Keg stand, talking about how great it is to contribute $5 per week into US Savings Bonds.

13 Z January 30, 2014 at 3:47 pm

Don’t get me wrong, I’m not supporting the idea. I think the ruling class has a problem. They can’t keep borrowing rates at near-zero forever. They cannot raise taxes to cover promised spending. They cannot borrow at historic market averages. They can’t possible cut a penny from spending. They tell us every day that most programs are woefully underfunded as it is so cutting is crazy talk, best left to lunatics wearing funny hats.

If it were me, I’d create the program with some incentive for business. Maybe the employer gets to deduct the employer contribution from payroll taxes. Every company in America would then become a sales office for MyRA. In a few years, the program is altered so that employees can transfer funds from their 401K to their MyRA. You keep nudging people through their employers and soon most will have their entire savings in these things.

14 Jan January 30, 2014 at 7:58 pm

Oh, the taxes will go up. In fact, they already are. The generation that ran up these liabilities won’t necessary pay for them, but they will be funded.

15 msgkings January 30, 2014 at 9:37 pm

Plus inflation…financial repression…and there will be some actual cuts like the sequester. The debts will get handled.

16 Cervantes January 30, 2014 at 1:42 pm

#6, Fascinating! Good job Arnold!
Meant to only glance at it and found myself still reading 30 minutes later. I had to wrest myself away from the page to get back to “work”. Definitely will print out and continue reading. Thanks.

17 Paul January 30, 2014 at 5:52 pm

It is pretty interesting, especially the personal anecdotes.

Don’t know about the money does not cause inflation thing though. I”m pretty sure my 70 trillion Zimbabwe dollar note is not endogenous money.

18 CPV January 30, 2014 at 2:11 pm

Mr Kling at least has the objectivity to report that the macro wars are ideologically driven. Few others seems to be willing to do this.

19 CBBB January 30, 2014 at 2:41 pm

Uhhh I’m pretty sure everyone says the Macro wars are ideologically driven

20 CPV January 30, 2014 at 5:11 pm

Don’t agree. At least one of the authors of this blog takes great pains to avoid making that claim. By ideologically driven, I mean it in the big/small government sense. Not the ISLM/DSGE sense.

21 Alexei Sadeski January 30, 2014 at 10:42 pm

I don’t think so.

22 JK January 30, 2014 at 2:53 pm

#4, What does the word “option” mean in this sentence, “There will be only one investment option” ?

And “account holders cannot lose money”. Well, not nominal dollars, apparently, but they sure can lose real dollars:

Who writes these things?

23 Frank Somatra January 30, 2014 at 4:53 pm

I would be pretty surprised if it did though. The G fund is easily the best short term bond fund on the planet–it pays a weighted average interest of all treasury debt of >4 years in duration (maybe time to maturity). I can’t recall the last time that would have been below inflation.

Honestly though, this is probably going to be most useful for people who want a one-time 3x boost to their yearly Roth IRA contributions. One could conceivably drop 14k in the MyRA and shift 14k bonds from their 401(k) into stocks or other asset classes, but they’re honestly probably better off for simplicity’s sake to just add 15k immediately and roll it into an IRA.

24 sort_of_knowledgable January 30, 2014 at 9:41 pm

I think the Times article is wrong about the $15,000 yearly contribution limit. Money CNN says the limit is the normal Roth limit and both agree that when a myRA reaches $15,000 it has to be rolled over to a private Roth. The times writer probably confused the maximum size with the yearly contribution limit. It seems pretty clear that purpose of the plan encourage people who are lower income and less financially sophisticated to start saving for retirement.

I find peoples reactions rather harsh. Given the $15,000 limit before being forced to roll over to a private account, its not really forcing a large amount of money to be loaned to the government. While a retirement account should have a larger equity component, for people who haven’t started a IRA, it’s not a bad way to start. Don’t want to shock people with possibly losing 20% when they just get started.

25 Mr. Econotarian January 30, 2014 at 7:15 pm

“Can’t lose money” didn’t the US just have its long term credit rating dropped from AAA?

BTW, the TPS G-Fund debt is a special, non-marketable debt (currently) based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity.…but I suspect the G-Fund interest rates could be tweaked (up or down) by legislation!

26 Jay January 30, 2014 at 5:42 pm

Am I wrong that #4 is simply a Roth invested entirely in treasuries except worse in every way?

27 sort_of_knowledgable January 30, 2014 at 9:03 pm

How is it worse than a Roth invested entirely in treasuries? There are no fees unlike IRAs offered by some other companies. There aren’t worse penalties for withdrawing interest before 59.5 years of age.

28 Jay January 31, 2014 at 12:36 pm

The fact that the treasury picks up the tab isn’t a feature to me as a taxpayer. Income limits, lifetime contribution limits, and a 30 year max lifetime before it turns into a Roth anyway seem to be pretty hefty downsides or at least not improvements over existing instruments. Yes Roth’s have income limits, but they’re easily worked around.

29 Peter January 30, 2014 at 7:40 pm

Said that naughty old Sappho of Greece,
“What I greatly prefer to a piece
Is to to have my pudenda
Rubbed hard by the enda
The little pink nose of my niece.”

30 Marie January 30, 2014 at 8:10 pm

Interesting and heartening to see the commentary here on #4.

31 Jan January 30, 2014 at 10:04 pm

#4. Sounds like a bunch of people with employer-matched 401ks and pensions talking.

I’m not sure what the problem with the MyRA concept is. It may be a useful nudge to get people saving who otherwise aren’t doing it, either because they don’t have access to a plan at work, or just lack the financial literacy to shop around for their own retirement investment strategy. There are a lot of people in these situations. I think this is much better than nothing.

32 Brian Donohue January 30, 2014 at 10:33 pm

Puh-leez. No one here begrudges the opportunity for lower income people to save for retirement.

But they mostly don’t, cuz rent, food etc. Simple fact.

Fortunately, for low income folks, Social Security provides most of what they need in retirement.

HR Departments beat themselves silly trying to get lower income people to save. Other than a hard nudge (default in), almost nothing works. Even with defaults, 10% or so opt out (mostly lower paid, of course.)

The moronic investment is just icing on the cake for an idea that is just grandstanding.

If you think differently, keep your eye on what becomes of this and report back with your findings in one year. I predict it will be bupkus.

33 Jan January 30, 2014 at 11:04 pm

SS ain’t all that much money, and its particularly low if you didn’t make much money when you worked. Also, an automatic deduction is one of those things that makes it a lot easier to save at any income level, thats just a fact.

A lot of employers really don’t offer any plan much less a match. I don’t necessarily believe the vast majority of employers are running themselves ragged trying to think of ways to get their workers to save. It’s especially true for small businesses. An off the shelf option that requires little to no administrative hassle for the employer is ideal might be the only way to get a workplace savings option in place.

34 Brian Donohue January 31, 2014 at 9:07 am

Believe what you want. The reason HR departments bend over backwards to encourage saving among low income workers is because if low income workers don’t contribute, high income workers, who have the wherewithal and a keen interest in tax-effective retirement saving, are also restricted in how much they can save.

You also misunderstand Social Security- the benefit formula produces much higher ‘pay replacement’ for lower income workers. Something like 25% of retirees TODAY live basically off of Social Security, and poverty among the elderly is lower than the general population.

Dude, it’s a feel good gesture. It allows people to feel like they are doing something. This is the real objective, as so often with wonderful-sounding liberal initiatives. The actual impact will be nil, but it gets into the SOTU and a nice NY Times article.

35 dead serious January 31, 2014 at 10:09 am

Honest question: are low-income folks working at the sorts of places that have HR departments?

I guess Walmart has HR but I’m guessing that the rank and file floor slave isn’t interacting much with HR drones.

36 Brian Donohue January 31, 2014 at 12:22 pm

I’m sure lot of low-income employees work at places without HR departments or 401(k) plans, but a lot also work for large companies that do have these plans. To the extent that those who do work at such places are representative of low income employees generally, it’s safe to say that it is very difficult to get these employees to save money for retirement, even with hard nudges like defaults (which MyRA doesn’t do.) And the reason is pretty obvious – these folks are living paycheck to paycheck and don’t have much or anything in the way of discretionary income. Liberals understand this ‘high propensity to consume’ when the topic is AD.

37 Jay January 31, 2014 at 12:27 pm

Agreed, and the fact that it is setup to only buy government debt is a nice side effect.

38 Jan February 1, 2014 at 9:49 am

The pay replacement rate is higher, but it is still much lower if you made a lot less money than a high income earner.

39 JWatts January 31, 2014 at 5:12 pm

“Also, an automatic deduction is one of those things that makes it a lot easier to save at any income level, thats just a fact.”

Well sure, if the Presidents MyRA plan had an automatic opt in or even better a forced savings component, then it would almost assuredly result in a higher savings rate. But it doesn’t, so the result is mostly a feel good project.

40 Jay January 31, 2014 at 12:26 pm

Low income people don’t save not because there isn’t a magical MyIRA available to them (we have that already, its a Roth invested in treasuries). They don’t save because they DON’T HAVE ANY MONEY or make poor choices with the money they do have. We don’t need the treasury picking up the tab for a redundant financial instrument not many people will make use of. I’m all for giving tax incentives to companies to further educate employees on retirement options already available, but getting money into the hands of the poor through an EITC would be far more effective at freeing up money to invest if that is really their goal.

41 AlanL January 31, 2014 at 1:43 am

They should name names for the quartets. Also, I wonder if recordings would have sufficient resolution for the technique to work – would be interesting to learn about some of the greatest of the historic greats: Borodin, Smetana etc.

Comments on this entry are closed.

Previous post:

Next post: