Movement to Scrap 401(k)s Gains Traction

She estimated a full-time worker retiring after 40 years could expect a benefit equal to about 25 percent of pre-retirement income. That would be on top of Social Security benefits.

The portion of Ghilarducci's plan that has drawn the greatest criticism is her suggestion to eliminate the tax breaks received for contributing to a 401(k) plan or an IRA.

Last week, conservative radio talk show host Rush Limbaugh pilloried her ideas, but Ghilarducci said Limbaugh got some of the facts of her proposal wrong, including that the guaranteed rate of return would be 3 percent above the inflation rate, not a flat 3 percent return.

Ghilarducci now talks about maintaining some level of tax-free contributions, maybe up to $5,000 a year, to IRAs or 401(k)s. That's more than most workers contribute to a retirement plan, she said, and would only cost the federal government $25 billion a year compared to the $80 billion a year contribution levels cost the federal Treasury now.

Ghilarducci said she's not "anti-stock market" but, rather, against 401(k) plans in their current iteration. She called the 401(k) "a tax shelter with very bad elements, namely hidden fees and very costly products."

The retirement scheme simply does not work, she said.

"If current trends continue, poverty rates among the elderly will increase and middle-class retirees will find that their retirement income will not pay for the lifestyle they achieved while working," she wrote in her original policy paper.

Ask the retirees you know if they've begun to worry about the same trends as the Dow has fallen more than 20 percent in less than a month. I think they might want to hear more about Guaranteed Retirement Accounts.

I'm not ready to embrace every aspect of Ghilarducci's plan, but it's a plan that needs to be part of the national discussion as we deal with the fallout from easy credit, risky derivatives and a stock market decline that has devastated the retirement fortunes of millions.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at

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