Government Takeover of Retirement Assets
Government Takeover of 401(k)s and IRAs?
January 18, 2010Media Matters - Bloomberg reports that the Obama Administration is considering measures to encourage Americans to convert their 401(k)s and IRAs into Government-provided annuities. The story has attracted a lot of negative commentary in the blogosphere:
- Will Collier, Coming Soon: Substituting Government Annuities for Your 401(k)?
- The International Forecaster, IRA's and 401k's to be Crammed Down While Tax Collections Plunge
- The Market Ticker, 401k/IRA Screw Job Coming?
- ROFASix, Is the Government Coming for Your IRA and 401k?
Comments
If Bloomberg is right, what a good idea! Make the reliable pension system look more like Social Security. Wow, are they serious?
Posted by: drataxsacto | Jan 18, 2010
I have actually been predicting something like this for about 10 years (government takeover of IRA / 401Ks). Way too much money for them to resist. My husband and friends used to laugh at me. Funny, they're not laughing now. In fact, they haven't been laughing since about November 2008.
Posted by: Lily | Jan 18, 2010
Social Security is an inflation-adjusted annuity, insurance against outliving your income, at the cost of (most of the time) getting out less than you put in.
The inflation adjustment would be hard to duplicate in the private market; inflation is an uninsurable event because all your policies go bad at once.
The rollover idea would be useful if the inflation adjustment is put in.
On the other hand, who is going to buy all the stock in 401k's. And that cash must be returned to the economy right away by the Treasury, so it could work like a money grab and frittering-away rather easily.
Social Security can always be actuarily balanced by raising the retirement age; you'd have to put that in the annuities too, lest it threaten national solvency.
Posted by: rhhardin | Jan 18, 2010
As a financial planner, I often encourage clients to consider annuitizing a part of their defined contribution plans to cover fixed expenses. There are good financial reasons to annuitize a part of your savings especially if you aren't covered by a defined benefit plan (aka pension plan).
However, it should be an individual decision based upon your own financial circumstances and not something mandated by the government. The only thing worse than a government-mandated annuity would be a government-run annuity.
Posted by: J Richardson | Jan 18, 2010
This administration already took over 2/3 of the Big 3 automakers
Its in the process of taking over 1/6 of the economy in the healthcare industry
Why not take over your retirement savings plan, too?
Of course, that's the only place you can invest to try to keep pace with the devastating effects of inflation, which our current fiscal policies are set to create.
So now your IRA can go broke right along with Medicare and Social Security.
Good frickin' grief
Posted by: Tax Jock | Jan 18, 2010
Assuming, of course, that inflation is measured correctly and that our elected "rulers" resist the temptation to "shade" the numbers in favor of reducing government obligations so as to afford other "benefits" such as nationalized healthcare. Anybody trust our current cabal of politicians???
VOTE **ALL** INCUMBENTS OUT!!!!
Posted by: Otto Maddox | Jan 18, 2010
It would be a travesty if the American people allowed any version of such a takeover to happen. The proper response is uniform, bipartisian outrage.
We know that 2010 and possibly 2011 must bring to light the problems with pension funds - union, state and local municipal, and various private funds. They were designed to be adequately capitalized with 8% returns. Now their capital is diminished, and 0-3% returns are likely. A fix is nationalization outright or insideously, yet the unfortunate truth is that the ultimate responsible party for these messes should not be the federal government.
Venezuela and Argentina did this, taking the retirement funds of their citizens, and those people are now largely penniless.
The tsunami of the pension fund crisis is a crisis which can be brought into the public and media attention sphere at essentially any moment at which it is politically expedient.
Government effort to take the accumulated wealth of the citizens' retirement may not be a crude, blunt frontal effort, but sutle. For example, mutual funds and other instruments when approved for retirement plans might be required to have a certain percentage of government securities set by an "agency determination".
Posted by: Spendulus | Jan 18, 2010
Never, never, never underestimate the capacity of government to become avaricous with your money. It is a habit which they acquired over many decades. They will not make financial changes which are beneficial to any cause other than the expansion of their own interests.
Posted by: Cecil Moon | Jan 18, 2010
This fits given the comment made a couple months ago by a Dem Congressman how IRAs 'cost' the Government too much.
Of course the cost being reduced revenue from tax payments.
Posted by: Fred Fry | Jan 18, 2010
Posted by: rob | Jan 18, 2010
Posted by: Choey | Jan 18, 2010
Really what's the big deal?
If the gov't wants your money, they will just raise taxes, or inflate away the debt at the expense of the dollar, or invent some new way to entice you to give it to them (like this).
If Goldman Sachs and the Wall Street sharks want your money, they will inflate the market, crash it, and buy it back for pennies on the dollar, making insane profits while getting more taxpayer bailouts.
Or maybe the insurance companies will take it...
Any way you lose.
At the end of the day, electronic financial blips in a bank account aren't even worth the electrons that light up your online statement.
Return on passive investment is a privilege for the few, not a right for the masses.
If you can't stomach the inevitable results of our pyramid financial system and its petty pharaohs, then convert your wealth to tangible assets and/or productive capacity of your choice and stop whining!
Posted by: tommus | Jan 18, 2010
You know they want this money and the money in private pensions. But they can't get it because people would literally shoot their congressman.
So they're borrowing to spend the money. Once the debt gets to a certain size, they will print money to pay it off. The resulting currency devaluation will cause your 401K savings to be worth half what it was. In this way, they can spend half of your 401K out from under you. The amount in your retirement account stays the same, it just buys half as much. Congress spends the other half. And you're left wondering why you're poor.
Posted by: Ben White | Jan 18, 2010
Knowing how much money was in these programs,I knew that it wouldn't be long before the bureaucrat's would be unable to resist keeping their hands off of them.
My wife and I traded all of our funds in a few years ago and have almost doubled our money from gold,I would do it all over again-especially now!
I sleep like a baby,do you?
Posted by: Dave | Jan 18, 2010
Two things:
1) This has already been done in Argentina. (Gosh - they have a charismatic leader who likes to spend money, too, don't they?
2) This may be the only option the Treasury has if the T-bill market tanks (e.g. China stopping new purchases, China selling (yikes!) or even - Social Security needing to cash in some of those IOUs to pay current retirees).
Posted by: MrJimm | Jan 18, 2010
Want to be they would be willing to put $0.35 of lead between their congressman's running lights, to protect those hundreds of thousands?
I am heating up the tar and stocking up on feather pillows just on the rumor. I would hate to be unprepared if such a scheme were to gain so much as serious consideration.
The govt can have my 401(k) and IRA when they pry them from my cold, dead hands.
Want the American people to shortcut straight to the ammo box? Do this.
Think we're pissed off now? Go ahead, Congress, try it. Make my day.
This sort of reaction is why I expect inflation to be the chosen method of confiscation. Anything else, be it spending cuts (even though this IS the only real solution), higher taxation, or this sort of thing, is too obviously and directly theft.
Inflation, however, is a very abstract thing. Unlike the other methods, which result in immediate impoverishment to their victims, inflation works behind the scenes and is easy to obscure (e.g. by the "borrow, then print" model noted above). By the time it shows up as rising prices, often a decade or two later, it's too late to do anything about it, and the perpetrators are long gone. Instead, the people can only direct their impotent anger at the "greedy" shopkeeper they see raising his prices, or the hapless current occupant of the White House.
Posted by: Seerak | Jan 18, 2010
Posted by: Neo | Jan 18, 2010
Without diminishing any of the comments above in the least, if true, this proposal confirms that the current Administration is guided by Marxism. Let's all hope our Republic should not suffer such a shabby death.
Posted by: Jake | Jan 18, 2010
This is actually good news. If the banks ever are in danger of collapse again, people won't be whining about where the money for the next bailout is coming from. This will help demolish this "us" and "them" mentality between citizen and government and I predict many Americans will see it as their patriotic duty to put their retirement savings on the line for the benefit of us all.
Posted by: WRosencratz | Jan 18, 2010
Some of us are emptying our 401Ks now in anticipation of this to pay off all our debts. If you're debt-free you may be poor but you'll have peace of mind. Very few Americans are debt-free. This would be the time to become so.
Posted by: Peg C. | Jan 18, 2010
Posted by: JackWayne | Jan 19, 2010
Doocy, Gingrigh Falsely Accuse Obama of a "Scheme" to Seize 401(k) Assets
April 6, 2010Steve Doocy and Newt Gingrich falsely claimed that the Obama administration is considering "a scheme" to "abolish 401(k)s" and "migrate Americans to a government-run program so the politicians would then have your money." In fact, the administration has not proposed moving retirement savings to a government-run system -- it is considering ways to promote annuities sold on the private market as a voluntary alternative to lump-sum cash payments in retirement.
Doocy and Gingrich claim Obama is pushing a "scheme" to take over "all the money you've saved your whole life"
Gingrich: "This is really a secular socialist machine that wants to take over your life."On the April 6 edition of Fox News' Fox & Friends, co-host Steve Doocy stated,
"There was a Business Week report that said the Treasury and Labor department asking for public comment on a scheme it sounds like to convert 401(k)s and IRAs, it sounds like into some sort of retirement thing where you give the money to the government, all the money you've saved your whole life, and then they will dole it out over a period of time. What's up with that?"Gingrich stated,
"I think this it's a very dangerous idea. This is really a secular socialist machine that wants to take over your life." Gingrich added: "[T]hey want to take it over in terms of a proposal that they would, in effect, over time, abolish 401(k)s, migrate Americans to a government-run program so that the politicians would then have your money."An on-screen graphic during the segment stated: "Protecting your savings: Your 401K and IRA confiscated for gov't debt?"
Administration considering effort to encourage participation in private-market annuities, not take over retirement savings
Business Week:
"Retiree Annuities May Be Promoted by Obama Aides [emphasis added]."A January 8, 2010, Business Week article, "Retiree annuities may be promoted by Obama aides", reported:
"The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged."The article continued:
The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.
Annuities generally guarantee income until the retiree's death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.
[...]
Promoting annuities may benefit companies that provide them through employers, including ING Groep NV (INGA:NA) and Prudential Financial Inc. (PRU), or sell them directly to individuals, such as American International Group Inc. (AIG), the insurer that has received $182.3 billion in government aid.
At no point did the article -- which Doocy cited -- suggest that the administration was looking to force retirees to purchase annuities, or that the government would manage annuities on behalf of retirees. The article reported:
"The question is how to encourage it, and whether the government can and should be helpful in that regard," Iwry said.
While traditional defined-benefit pensions were paid out as annuities, providing monthly payments for retirees and often their spouses, workers increasingly are taking advantage of options to receive lump-sum distributions.
[...]
Retirement plans, including 401(k) accounts, held $3.6 trillion in assets at the end of the second quarter of 2009, while annuity investments of all kinds totaled about $2.3 trillion, according to figures from the Washington-based Investment Company Institute, a trade association for asset managers.
The top sellers of individual annuities in the U.S. include AIG, MetLife Inc. (MET), Hartford Financial Services Group Inc. (HIG), Lincoln National Corp. (LNC) and New York Life Insurance Co., according to figures from the American Council of Life Insurers for 2008. The top group-annuity sellers include ING, Prudential Financial, MetLife and Manulife Financial Corp.
Labor and Treasury considering encouraging private annuities as an option for distribution of 401(k) savings, not giving government control over retirement. In a Request for Information, the Department of Labor's Employee Benefits Security Administration and the Treasury Department sought comments on how the administration could -- and whether the administration should -- "facilitate access to, and use of, lifetime income or other arrangements designed to provide a stream of income after retirement," citing studies showing that few retirees have access to or take advantage of retirement options that provide a steady stream of income rather than a single, lump sum of cash. From the administration's Request for Information:
While defined contribution plans have some strengths relative to defined benefit plans, participants in defined contribution plans bear the investment risk because there is no promise by the employer as to the adequacy of the account balance that will be available or the income stream that can be provided after retirement. Moreover, while defined benefit plans are generally required to make annuities available to participants at retirement, 401(k) and other defined contribution plans typically make only lump sums available. Furthermore, many traditional defined benefit plans have converted to lump sum-based hybrid plans, such as cash balance or pension equity plans, and many others have simply added lump sum options. Accordingly, with the continuing trend away from traditional defined benefit plans to 401(k) defined contribution plans and hybrid plans, including the associated trend away from annuities toward lump sum distributions, employees are not only increasingly responsible for the adequacy of their savings at the time of retirement, but also for ensuring that their savings last throughout their retirement years and, in many cases, the remaining lifetimes of their spouses and dependents.
In recognition of the foregoing, the Agencies are considering whether it would be appropriate for them to take future steps to facilitate access to, and use of, lifetime income or other arrangements designed to provide a stream of income after retirement. This includes a review of existing regulations and other guidance and consideration of whether any such steps would enhance the retirement security of participants in retirement plans, taking into account potential effects on and tradeoffs involving other policy objectives. To that end, this request for information (RFI) sets forth a number of questions that are generally organized into categories under which the Agencies may be able to provide additional guidance if appropriate. This RFI also includes a number of questions pertaining to the economic impact of rulemaking, and to impediments beyond the statutory requirements, if any. Commenters are not limited to these questions and are invited to respond to all or any subset of the questions, but the Agencies request that commenters relate their responses to specific questions when possible.
New York Times' Lieber: "If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won't."
In his New York Times "Your Money" column, Ron Lieber discussed efforts to promote annuities for retirees and stated,
"The basic annuity is almost certainly underused. Sure, you may be able to arrange a better income stream on your own, but not without a lot of help from a financial planner or a lot of time managing it yourself. Then there's the possibility, however small, that you'll spend too much in spite of yourself or run into a once-in-a-generation market event that will cause you to run out of money sooner than you expected."From Lieber's January 29 column:
At its simplest, which is how the White House seems to want to keep it, an annuity is something you buy with a large pile of cash in exchange for a monthly check for the rest of your life.
If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won't. In effect, it allows you to buy the pension that your employer has probably stopped offering, and it can help pick up where Social Security leaves off.
[...]
Annuities won't be right for everyone (people in poor health should probably steer clear). And they're not right for everything because it rarely makes sense to put all of your money in a single product or investment.
You could, for instance, use an annuity to cover the basic expenses that your Social Security check doesn't cover. You might also use the money to buy long-term care insurance, which would keep nursing home bills from becoming a budget-destroyer.
But the president has one thing right: The basic annuity is almost certainly underused. Sure, you may be able to arrange a better income stream on your own, but not without a lot of help from a financial planner or a lot of time managing it yourself. Then there's the possibility, however small, that you'll spend too much in spite of yourself or run into a once-in-a-generation market event that will cause you to run out of money sooner than you expected.
All of that makes basic annuities the ultimate test of risk aversion. If you buy some, you and your heirs may have less money than if you'd kept your retirement savings in investments. Then again, if you guarantee enough of your retirement income, you -- and those same heirs -- won't have to worry about how you're going to meet your basic needs.
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