US MARKETS

 [We were afraid something like this might happen, if this legislation is passed the next step will probably be something even more onerous. As you know congress has heard testimony about rolling retirement plans into Social Security. Although we don’t know that that will happen but what the Senate is doing could be a first step in that direction. We know that most of you cannot get out of your 401k without losing your job. So you don’t have much choice. Those who have 401k’s that are self directed, because they left or were forced from their employer they might consider paying the taxes and penalty if applicable. This is not a good development.]

Proposal aims to curb raids on 401(k)s

By Sarah O’Connor in Washington

Published: October 28 2009 20:02 | Last updated: October 28 2009 20:02

          US lawmakers were set to propose a new law on Wednesday that would discourage people from raiding their retirement savings early to see them through tough financial times or to splash out on expensive items.

          The robustness of the US retirement system has come under close scrutiny since the financial crisis crushed the value of many so-called “defined contribution” pension plans such as 401(k)s, which invested in the markets. Legislators have already proposed bills trying to improve transparency, particularly over fees and conflicts of interest.

          Herb Kohl, chairman of the Senate special committee on ageing, was on Wednesday set to go one step further and propose a law that would discourage people from dipping into their 401(k)s before they retire, which can seriously reduce the pot of money they have to live off in old age.

          Some 15 per cent of Americans between the ages of 15 and 60 raid their 401(k) retirement savings plans, either by taking a “hardship withdrawal”, borrowing money from it or simply cashing it out when they leave their employer. Some fear that more people will be driven to do this as unemployment mounts and people struggle to pay bills and other expenses, though the Government Accountability Office has found no evidence of this.

          “Americans’ retirement savings have taken a huge hit due to the recession,” said Mr. Kohl last month after the GAO released a report into so-called “leakage” from plans. “Despite the financial hardships many are facing, people need to resist raiding their 401(k) because it can be a really bad deal for them over the long-run.”

          Taking money from 401(k)s can incur a 10 per cent tax penalty as well as fees and the loss of compound interest the account would otherwise have accrued. The GAO study found that a low-earning 35-year-old who took a $5,000 hardship withdrawal would forgo 12 per cent in retirement savings.

          Mr. Kohl’s bill, which has yet to be introduced, was expected to ban products such as “401(k) debit cards” – a niche item that allows people to dip frequently into their savings.

          It would also increase the interest rate that people have to pay on so-called 401(k) loans – when they effectively borrow money from themselves and are required to pay it back with interest. The bill would cut the number of loans people can take at one time, and eliminate a provision that stops people contributing to their 401(k) for six months after taking a hardship withdrawal, which the GAO found was ultimately damaging rather than helpful.

          The Senate ageing committee is also investigating “target date funds” which have become the most popular default option for people automatically enrolled into 401(k)s. These plans are intended to shift from riskier investments such as stocks into safer ones such as bonds as the saver ages.

          But the financial crisis exposed a big disparity in such funds: 2010 target funds had anything from 21 to 79 per cent of their investments in stocks, for example, meaning some were badly hit when Wall Street tanked last year.

          US Airways will eliminate another 1,000 jobs by the middle of next year as it cuts more flights and closes flight crew bases in three cities.

          The Tempe-based airline said today it is restructuring its operations to focus almost solely on its major hubs in Phoenix, Philadelphia and Charlotte, plus Washington, D.C., and its US Airways Shuttle on the East Coast.

          The airline plans to eliminate nearly 30 more flights from its once-large Las Vegas hub, eliminate service to Colorado Springs and suspend service to five European cities from Philadelphia.

          Current number is 308 and the names of the cosponsors are available at the above link.  Congressman Moran (D) of Arlington County/City of Alexandria and Congressman Connolly (D) of Fairfax County/Prince William County have yet to sign on.

          Current number is 30.  VA Senator Webb (D) is cosponsoring the bill, but VA Senator Mark Warner (D) has yet to sign on.

          It also canceled plans to start flying between Philadelphia and China until the economy improves.

          The job eliminations mark US Airways' third major layoff in the past year. Last fall, it cut 2,600 positions across the country, and it recently eliminated 600 airport customer service jobs. The airline also asked for voluntary flight attendant furloughs earlier this year. It currently has more than 32,000 employees.

          The latest round of job cuts includes 600 airport customer-service and ramp-service jobs, 200 pilot jobs and 150 flight attendant positions. It is closing flight crew bases in Boston, New York and Las Vegas.

          Key lawmakers unveiled a bill Tuesday aiming to crack down on wealthy tax dodgers hiding money overseas.

          The bill would impose new reporting requirements on foreign financial institutions doing business in the U.S., and on American advisers who help U.S. residents make investments overseas. Foreign firms that don't comply would be hit with a 30 percent withholding tax on income from their U.S. assets.

          The bill which would raise an estimated $8.5 billion over the next 10 years, was introduced by the top Democrats on the tax-writing committees in the House and Senate.

          "This bill offers foreign banks a simple choice - if you wish to access our capital markets, you have to report on U.S. account holders," said Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee. The bill was also sponsored by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, among others. President Barack Obama praised the bill, which is similar to legislation he proposed this year.

          Lawmakers have been working for years on proposals to stop tax cheats from hiding assets overseas. Sen. Carl Levin, D-Mich., who has worked on the issue, estimated the U.S. loses $100 billion a year in tax revenue because of international tax cheats.

          Treasury Secretary Timothy Geithner said the bill adds to the administration's strategy of negotiating new agreements with other countries to share more financial information about U.S. account holders.

          IRS Commissioner Doug Shulman said, "These efforts will give the IRS significant new tools to continue our expansion of international tax enforcement and make it even more difficult for U.S. citizens to avoid paying taxes by unlawfully hiding money overseas."

          The Internal Revenue Service has been beefing up offices that track overseas investments, and Shulman recently announced that more than 7,500 people had come forward under an amnesty program that promised no jail time and reduced penalties for international tax cheats who turned themselves in.

          Shulman is also setting up an IRS office to target wealthy tax cheats who use complex investment arrangements to hide money from the federal government. The Global High Wealth Industry group will focus on tax cheats with incomes or assets exceeding $10 million, Shulman said.

          American International Group Inc.’s draw on a Federal Reserve credit line surged for a fourth week to the highest since May after the insurer paid down a commercial paper facility and propped up its airplane unit.

          AIG owes $44.8 billion on the line, about $3.6 billion more than last week, according to Federal Reserve data released today. The increase in the Fed line stemmed from paying down the U.S. commercial paper facility as those borrowings matured, said Mark Herr, an AIG spokesman, in a telephone interview. AIG made $1.1 billion in payments to the Fed line this week, Herr said.

          “This is a rebalancing of our various government borrowings, rather than a true increase in government debt,” Herr said. “While the Fed balance has increased, there’s been a corresponding decrease in the borrowings under the” commercial paper program.

          AIG, bailed out in September 2008 with a package that has ballooned to $182.3 billion, also tapped the Fed line for $2 billion this month to prop up its International Lease Finance Corp. unit after a bank loan facility expired, the plane leasing subsidiary said in a filing Oct. 19.

          The Federal Reserve's latest weekly money supply report Thursday shows seasonally adjusted M1 rose by $12 billion to $1.680 trillion, while M2 rose $26.4 billion to $8.358 trillion.

...

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