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Grab Your Pitchforks, America, Your 401(K) May Need Defending from Congress

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The lucky participants in one of the best retirement plans around are coming after yours with a meat cleaver.

In the early stages of negotiating tax reform, Congress is already considering whether to reduce the benefits of contributing to a 401(k) and similar retirement plans — even as U.S. representatives and senators bask in the safety of the pension system that taxpayers fund for federal employees.

Alongside several million U.S. government workers, members of Congress participate in the Federal Employees Retirement System, which wraps their current savings and future pensions in a cushion of comfort that most American workers can only dream of.

Only about 13% of employees nationwide are covered by both a 401(k) and a traditional pension that assures stable, lifelong income, according to the Center for Retirement Research at Boston College; all 535 members of Congress are.

In 2015, the average taxpayer-funded annual pension received by recently retired members of Congress was $41,316. A representative or senator retiring in 2014 after 30 years in Congress would earn an annuity of roughly $104,600 to $130,500, according to the Congressional Research Service.

Retirement savers in the private workforce pay outlandish management fees that can exceed 1% annually on lousy investment choices; members of Congress pay a maximum of 0.039% for funds that all but guarantee matching the market.

Those expenses on a $10,000 investment can easily eat up at least $100 a year for regular retirement savers; fees on the same amount in a U.S. representative or senator’s account can’t exceed $3.90.

Fewer than one in 10 corporate retirement plans match 5% of employees’ contributions dollar-for-dollar, according to the Plan Sponsor Council of America. Every member of Congress gets that match — funded by the taxpayers.

Even if a member of Congress won’t set aside any of his or her own money, the public automatically contributes an amount equaling 1% of that legislator’s salary to the federal retirement fund. Nearly all members of Congress earn $174,000 annually.

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A reliable retirement is “a four-legged stool,” says David Kabiller, co-founder of AQR Capital Management in Greenwich, Conn., and co-author of a recent article on how to design retirement programs. Those four legs are a traditional pension, a 401(k)-type plan, Social Security and supplemental savings in taxable accounts. “Eliminate or restrict any of those,” he says, “and you make achieving a secure retirement more challenging.”

Yet that is what Congress, perched securely on its taxpayer-funded four-legged stool, is considering for the rest of us.

At a meeting with members of the Senate Banking Committee earlier this month, Gary Cohn, the director of the White House National Economic Council, discussed ideas that would remove pre-tax benefits from retirement accounts including 401(k)s and shift them to after-tax benefits, according to people familiar with the discussions. It wasn’t clear how seriously the administration is evaluating any specific proposal, these people said.

Some are confident change is afoot. In the next round of tax reform, “it’s not really a question of whether retirement plans will get a haircut, but of how much,” says Bradford Campbell, a partner in the law firm of Drinker Biddle & Reath in Washington, D.C., who served as assistant Secretary of Labor under Pres. George W. Bush.

That’s because the money you contribute to 401(k)s and several other types of retirement plans isn’t subject to current income tax. Nor are your future earnings on those accounts — until you take them out to live on in retirement, when your withdrawals will be taxed as ordinary income.

If your retirement dollars were treated, instead, like contributions to a Roth Individual Retirement Account or Roth 401(k), they would be taxed before you put them in. You could ultimately withdraw the money tax-free in retirement, but the incentive of getting an upfront tax break would be gone.

Taxing retirement-plan contributions Roth-style would generate roughly $1.5 trillion over the next decade the way the government reckons the numbers, estimates Mr. Campbell. So giant a pot of honey may be hard for Congress not to raid.

“We definitely need comprehensive tax reform,” says Mr. Campbell. Unfortunately, when lost revenue has to be replaced, “it’s a game of winners and losers, and the retirement system is poised to be one of the losers.”

It’s hard for most people to save for a goal that glimmers faintly decades in the future. Take away the tax incentive, and many savers might no longer see the point of even trying.

Fully 39% of Americans don’t feel very confident in their ability to fund a comfortable retirement, according to a recent survey. It’s safe to say none of those worried folks are members of Congress.

Instead of penalizing retirement saving, lawmakers should be making it easier, perhaps even mandatory — as it is for members of Congress.

For workers struggling to set money aside, says Mr. Kabiller, “mandatory savings could help impose the discipline of giving up compensation today in order to fund your longevity down the road.”

At a bare minimum, if Congress is going to hack away some of the tax advantages of private retirement plans, it should make matching cuts to the cushy federal system.

“There should be equal sacrifice,” says Mr. Campbell. “It’d be very hard for them to justify not doing that.”

If you have a pitchfork in your garage, keep it handy. Your 401(k) might need defending.

– Nick Timiraos contributed to this column.

Write to Jason Zweig at intelligentinvestor@wsj.com, and follow him on Twitter at @jasonzweigwsj.



























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HarlandCorbin
5 days ago
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One problem with this article, at least with non-congress federal workers, they mostly fund their retirement by themselves. My dad is a retired defense worker, this article would make him very upset.

Congress has its own separate system, it does not work the same as the system for every other federal worker.
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Bridgestone's Airless Tires Will Soon Let Cyclists Abandon Their Bike Pumps

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First revealed way back in 2011, Bridgestone’s airless tires use a series of rigid plastic resin spokes to help a wheel keep its shape as it rolls, instead of an inflatable inner tube that can puncture and leak. Military vehicles and ATVs have been some of the first vehicles to adopt the unorthodox design, but Bridgestone will soon be making a version of its airless tires for use on bicycles.

Airless bike tires aren’t a new idea, you can already get wheels made from a solid rubber composite if you’ll be riding on terrain where the risk of punctures and flats is high.

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But Bridgestone’s approach, which replaces the inner tube and a portion of a bicycle wheel’s spokes with thermoplastic resin supports, is better engineered to absorb bumps and provide an overall smoother ride, without ever requiring the rider to have to adjust the air pressure in their tires. More importantly, it will never go flat, or leave a cyclist stranded on the side of the road.

If eventually adopted for cars, airless tires have the potential to improve fuel efficiency since they’ll never deflate or lose their shape over time, but also improve safety, given they also can’t dangerously explode. With bikes, however, it’s more of a convenience thing, since cyclists would no longer have to carry a pump, or wrangle a spare inner tube. Bridgestone is hoping to have its airless bike tires ready for consumers by 2019, just ahead of the 2020 Tokyo Summer Olympics, although it remains to be seen if they’ll be approved for official cycling competition in time.

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[Bridgestone via designboom]

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HarlandCorbin
8 days ago
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But on cars, it is good to be able to manage the air pressure in your tires based on expected road conditions. Maybe a hybrid tire?
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Jeff Bezos Is Now the World's Second Richest Person

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Jeff Bezos has leapt past Amancio Ortega and Warren Buffett to become the world’s second-richest person.

Bezos, 53, added $1.5 billion to his fortune as Amazon.com Inc. rose $18.32 on Wednesday, the day after the e-commerce giant said it plans to buy Dubai-based online retailer Souq.com. Bezos has a net worth of $75.6 billion on the Bloomberg Billionaires Index, $700 million more than Berkshire Hathaway Inc.’s Buffett and $1.3 billion above Ortega, the founder of Inditex S.A. and Europe’s richest person.

Amazon’s founder has added $10.2 billion this year to his wealth and $7 billion since the global equities rally began following the election of Donald Trump as U.S. president on Nov. 8. The rise is the third biggest on the Bloomberg index in 2017, after Chinese parcel-delivery billionaire Wang Wei’s $18.4 billion gain and an $11.4 billion rise for Facebook Inc. founder Mark Zuckerberg.

Buffett, who’s added $1.7 billion in 2017, has shed $4.7 billion since his fortune peaked at $79.6 billion on March 1. Ortega is up $2.1 billion year-to-date. Bezos remains $10.4 billion behind Microsoft co-founder Bill Gates, the world’s richest person with $86 billion.


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    HarlandCorbin
    30 days ago
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    Ah, but only if he sold all his Amazon stock without somehow tanking the share price. Wealth in stocks is imaginary, try to go buy something at Chipotle with stock instead of money.
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    I’m a freelance designer but one of the companies I work for are mainly retirees and always call me...

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    I’m a freelance designer but one of the companies I work for are mainly retirees and always call me for IT support.

    Client: I got a new smart phone and I want you to set my email up on it.

    Me: OK no worries. Is it an iPhone or an Android?

    Client: It’s an iPhone.

    Me: OK. I can help you do this remotely. Go to the settings app. It looks like a small cog.

    Client: I don’t have that app do I need to download it?

    Me: No. It’s an app that’s already installed on your phone when you buy it.

    Client: Well it’s not on my phone.

    Me: Are you sure it’s an iPhone?

    Client: Yes! It’s a Samsung iPhone!

    Me: Look at the front of the phone. Does it have Samsung written on the front?

    Client: Yes it does.

    Me: Ok, that’s not an iPhone. It’s a Samsung, Android phone. No worries! We can still set up your email on it.

    Client: No! The salesman said it’s an iPhone! It has a touch screen and everything!

    Me: Yes, they are similar to iPhones, they are a smart phone but run a different operating system.

    Client: Do I need to download the iPhone app?

    Me: Tell you what. Why don’t you bring the phone to me and I’ll set up the email. We’ll have coffee.

    Client: Ok! Thanks! I’ll bring cake.


    > Want to know if freelancing is for you?

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    HarlandCorbin
    38 days ago
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    Not a CFH, they are bringing cake! This is an opportunity to teach them a little over coffee.
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    How To Make Ubuntu Look Like Mac (In 5 Steps)

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    A step-by-step guide for making Ubuntu look like a mac, covering everything from GTK theme and icon set to fonts and desktop docks.

    This post, How To Make Ubuntu Look Like Mac (In 5 Steps), was written by Joey Sneddon and first appeared on OMG! Ubuntu!.

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    HarlandCorbin
    46 days ago
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    No Thanks!
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    How the U.S. Air Force Mapped the World at the Dawn of the Cold War

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    HarlandCorbin
    82 days ago
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    Precursor to GPS, my guess is that they used this to work out the bugs in the GPS satellites!
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