Let me start off by saying that I’ve long admired the work that Ed Feulner and his crew do. As far as I’m concerned, no organization in the last 35 years has been more vital to the promotion of conservative philosophy than the Heritage Foundation has been. So nobody should take the following admonition as anything but a familial, respectful prodding.
Perhaps you’ve read recently about an idea that’s percolating — both on Capitol Hill and, more recently, in the Obama Administration — regarding the conversion of assets held in tax-incented defined contribution retirement plans (401Ks and IRAs, mainly) into annuities that would more closely resemble the old defined benefit plans (pensions, Social Security, etc.) that have fallen out of favor in the last few decades.
Now, this general concept has been advocated in various forms — most notably by New School economist Teresa Ghilarducci, who is pushing for a broad conversion of private DC retirement accounts into what she terms “Guaranteed Retirement Accounts.” She would basically remove the tax deferment from future contributions to 401Ks and IRAs, offer a little mint to people to move their accounts’ existing assets into a public annuity, and then offer a 3% annual return (plus inflation), with minimums guaranteed by tax subsidy.
A ghastly idea, no doubt. And one that would, I imagine, go over like a lead balloon politically. But, at the very least, she puts it forth as an “opt-in” (despite removing the tax incentive to contribute to a 401K or IRA in the first place).
OK, so what does this have to do with The Heritage Foundation, you ask? I shouldn’t be slandering them for something they had nothing to do with.
Well, so far as I can tell, they didn’t have anything to do with Ghilarducci’s plan. So I won’t tar them with it.
But the Obama Administration has embarked on its own effort to promote the conversion of assets held in 401Ks and IRAs into annuities (which, I should note, is something that anybody is free to do of their own volition right now should they choose). The two officials they’ve selected to head up the effort are Phyllis Borzi of the Labor Department and Mark Iwry of the Treasury Department. What they seem to have in mind — for the time being, anyway — is less aggressive than what Ghilarducci has been advocating. But it doesn’t take a tin-foil hat to imagine that even the most subdued effort to “promote” these conversions could become much more forceful as the fiscal realities of Social Security’s imbalance begin to take hold.
The undertaking was profiled in a recent BusinessWeek piece. And it was criticized, along with a wary glimpse into what’s coming, by Newt Gingrich and Peter Ferrara of the Institute for Policy Innovation in an op-ed in Investor’s Business Daily last week.
OK. So, again, where does The Heritage Foundation fit into all of this? I’m getting to it, stick with me.
The reason Mark Iwry was tapped by the Obama Administration to lead this effort is because it actually finds its roots in a policy paper he co-wrote while at the Brookings Institution’s Retirement Security Project in 2008 called “Increasing Annuitization of 401(k) Plans with Automatic Trial Income”. In their abstract, the authors briefly explain their idea:
Specifically, we propose that a substantial portion of assets in 401(k) and other similar plans be automatically directed (defaulted) into a two-year trial income product when retirees take distributions from their plan, unless they affirmatively choose not to participate.
You’ll note that, unlike Ghilarducci’s “Guaranteed Retirement Account” plan, the Brookings plan is actually opt out. That is, under this plan unless you specifically say that you’re not interested, then “a substantial portion of assets” in your 401K would be taken out of your account at retirement and moved into an annuity.
So, finally, why am I besmirching the Heritage Foundation for these ideas? Well, because, one of Iwry’s co-authors on the 2008 policy paper was David C. John, a Senior Fellow at the Heritage Foundation. Here I am the other day reading up on this prospective Pandora’s Box, and my heart sunk a couple inches when I glanced up and found the Heritage name on the masthead of this abomination.
Now, I’ve got no problem with conservative thinktanks working collaboratively with people from Brookings or anywhere else. I do, though, have a problem with them effectively providing intellectual and political cover for expansions of government power.
Of course, they’re free to do whatever they want in terms of policy research. They’re free to lend the credibility of their name to whomever and whatever they want. It’s their name, after all, and not mine.
The problem is that, for better or worse, “Heritage Foundation” has become synonymous with conservative policy ideas. As such, it makes it hard for those of us in the political trenches to argue against government power-grabs when Heritage gives such policy ideas an imprimatur of conservative acceptability.
Another recent example of them doing this was with the universal healthcare program in Massachusetts. As I recall, Heritage signed off on that plan, signed into law by Gov. Romney. And many healthcare policy experts say that the current national healthcare reform in Congress (particular the Senate version) borrows a lot of elements from the Massachusetts program.
I appreciate them wanting to have input on influential policy papers. I really do. But, to me, this looks like they’re just allowing themselves to be used as cover for people who have their sights set on expanding government’s size and scope.