Government Takeover of Retirement Assets

Are the Feds Trying to Nationalize Your Retirement Savings?

May 9, 2010

PowerLineBlog - For some time, there have been rumblings that the federal government might try to solve its budgetary problems by nationalizing (i.e., stealing) the money that millions of Americans have set aside for retirement in 401(k) plans and the like. One way they might do this is to confiscate the cash on hand in exchange for a promise to make future payments in the form of an "annuity." An involuntary annuity, in that scenario.

I haven't taken this speculation too seriously, mostly because the core of the Democratic Party consists of lawyers, and a lawyer's most precious possession is his 401(k) account. One of those who have taken the threat more seriously is Congresswoman Michele Bachmann, who co-authored a letter warning the Obama administration against any attempt to confiscate Americans' retirement savings. You can read the letter here. It says, in part:

In the Annual Report of the White House Task Force on the Middle Class, Vice President Biden discussed at length the creation of so-called "Guaranteed Retirement Accounts (GRAs)" which would provide protection from "inflation and market risk" and potentially "guarantee a specified real return above the rate of inflation" -- presumably at taxpayer expense. ...

The Vice President's comments are troubling, insofar as they come on the heels of testimony before Congress from supporters of GRAs proposing to eliminate the favorable tax treatment currently afforded to 401(k) plans, and instead use those dollars to fund government-invested GRAs into which all employees would be required to contribute a portion of their salary -- again, with a government subsidy. These advocates would, essentially, dismantle the present private-sector 401(k) system, replacing it instead with a government-run investment plan, the size and scope of which remain to be seen.

The letter goes on to discuss a "Request for Information" that has been issued by the Departments of Labor and Treasury on the "annuitization" of 401(k) plans:

Similarly, and more recently, the Departments of Labor and Treasury have jointly issued a "Request for Information" regarding the "annuitization" of 401(k) plans through "Lifetime Income Options." ...

[W]e urge that the Departments take no action to mandate that plan sponsors -- often, small businesses -- include a "lifetime income" or "annuitization" option if they choose to offer a 401(k) plan to their employees, or that beneficiaries take some or all of their retirement savings in such an option.

You can read the Labor and Treasury Departments' Request for Information in the Federal Register. Its main theme is that the private-sector trend is toward defined contribution plans and away from defined benefit plans, and that, for some reason, plan beneficiaries don't choose lifetime annuity products as often as some bureaucrats think they should. So the federal government is looking for ways to promote lifetime annuities.

There are, of course, benefits to such products. There are also drawbacks; most notably, they do not allow the saver to leave money to his children. If you die prematurely, you are just out of luck. In that respect as in others, lifetime annuities look a lot like Social Security. It is not clear why the federal government should be in the business of promoting one form of retirement product over another.

But, while the "Request for Information" definitely exhibits a paternalistic attitude, it doesn't explicitly say anything about confiscating 401(k) accounts, or about the government taking on the role of annuity issuer.

At this point, I think the best we can say is this: the federal government is desperate for cash, and the biggest untapped source of wealth is the hundreds of billions or trillions of dollars that Americans who are now nearing retirement age have saved over their lifetimes. I don't doubt for an instant that the Obama administration would like to get its hands on this money, which would go a long way toward resolving the current government debt crisis. An obvious way of doing so is to take the money now, in exchange for a promise to pay an "annuity" later. The bottom line is that, given what we know about the Obama administration's rapacious appetite for swallowing up private wealth, anyone who has savings should be vigilant.

Next Target of Zionists Banksters - 401k Retirement Funds

US Citizens To Be Raped To Underwrite Government Debt

January 27, 2010

Karl Schwarz - I have been expecting this news to break for many months. If the US government wants to raid or tamper with the 401(k) retirement funds of Americans, there has to be some agenda they are not letting the public in on. Any American that thinks they get the truth, the whole truth and nothing but the truth from Washington, DC, needs a serious head examination at the earliest possible moment.

Don't worry about getting a brain tumor from an MRI or CAT scan. Find out first why the brain is either not working or even inside the skull.

Just today, January 27, 2010, the people at MoneyMorning.com have finally come forward with a well written piece (see next story) about what this new agenda is from Washington, DC: to start tampering with the investment retirement accounts of American citizens.

You see, with the massive amounts of capital markets and US government fraud, and the massive bailouts to just about everyone but the citizens of the US government, Uncle Sam cannot find reliable buyers for US debt. Most foreign buyers are choking to death on cheap US paper and a worsening value of the US dollar.

Our moron leaders have created a $14 trillion hole that they cannot find a way to fill back up. So, their new 'slick trick' is to force US citizens to put a part of their 401(k) accounts (and IRA eventually) into funds tied to the US Treasury bonds. They are probably already scheming to go after union and corporate retirement funds that fall under ERISA, too.

PFGC, FDIC, US Treasury are all broke, and the idiots in the White House and Congress are definitely broke and broken.

That is how deep the hole is that these idiots in Washington DC have created. We are now at a point that they will tell any lie, pull any slick trick so they can keep racking up the debt and not have to face realities in DC. Oh, my, realities in DC are as terrifying as lions, and tigers, and bears!!!

Realities mean the hog trough is desperately short of cash for these lying con artists to dip their grimy fingers into. They cannot plaster their names on some federal building or federally funded building if the hog trough runs dry. So, yes, let them pilfer and plunder the savings of American citizens since they have pilfered and plundered everything else in sight.

Does anyone think they would hesitate to default on debts to Americans so they can avoid defaulting on the US government debt to foreign governments? If you think you are immune and the 'good faith and credit of the United States' is good enough for you, you need to go see a psychologist or psychiatrist.

And people wonder why I got as far from the idiots in DC as I could.

2010 is going to suck, folks, and if you do not clean house (Senate and House) in November, may God help you.

Why the Government Wants to Hijack Your 401(k)

January 27, 2010

Money Morning - It's bad enough that we've been forced to bail out Wall Street. But now the Obama administration is hatching plans to raid our retirement savings, too.

To say that I'm "outraged" doesn't come close to describing the emotions I experience every time I think about the government's latest hare-brained scheme.

According to widespread media reports, both the U.S. Treasury Department and the Department of Labor plan are planning to stage a public-comment period before implementing regulations that would require U.S. savers to invest portions of their 401(k) savings plans and Individual Retirement Accounts (IRAs) into annuities or other "steady" payment streams backed by U.S. government bonds.

Folks, there's only one reason these agencies would do such a thing - the nation's creditors think that U.S. government bonds are a bad bet and don't want to buy them anymore. So like a grifter who's down to his last dollar, the administration is hoping to get its hands on our hard-earned savings before the American people realize they've had the wool pulled over their eyes ... once again.

It's easy to understand why.

Facing a $14 trillion fiscal hangover, the Treasury can no longer count countries such as Japan and China to be dependable buyers of U.S. government debt. Not only have those nations dramatically reduced their purchasing of U.S. bonds, most of our largest creditors are now actively diversifying their reserves away from greenback-based investments in favor of other reliable stores of value - like oil, gold and other commodities.

This growing reluctance couldn't come at a worse time. Just yesterday (Tuesday), in fact, the Congressional Budget Office estimated that the U.S. budget deficit would hit $1.35 trillion this year. And that's not the only shortfall the Treasury has to address. The U.S. Federal Reserve is supposed to stop buying Treasury bonds for its asset portfolio, a program the central bank put in place last year.

The upshot: The Obama administration has to find other ways sell government debt - without raising interest rates, a move that would almost certainly jeopardize the country's super-weak economic recovery.

Facing an uphill battle and increasingly skeptical buyers, the government is changing tactics and targeting the biggest pile of money available as a means of dealing with its fiscal follies - the $3.6 trillion sitting in U.S. retirement plans, including 401(k) plans.

The way I see it, the Obama administration can see the financial train wreck that's going to occur. So it's rushing to crack open the safe that holds our retirement money before anyone realizes that they've been robbed.

And if this plan becomes reality, that's just what it will be - robbery. American retail investors didn't sign up for the financial-crisis roller-coaster ride we've been on since 2008. We didn't approve the nation's five-fold increase in lending capacity. And we certainly didn't volunteer to help pay down a national debt that's doubled.

Few people realize that the federal government spent an estimated $17,000 to $25,000 per U.S. household in 2009 (the final figures haven't been calculated, yet). But that's no surprise: "We the people" didn't approve it.

At a point where it's spending money like a drunken sailor, Washington seems more interested in appropriating and redistributing our retirement savings than it is in fixing a system that's badly broken. If you add in all the stimulus spending that the taxpayers must now repay, the average government-agency-spending tab has zoomed more than 50% in the last couple of years. That's right - 50%.

So it's only logical that the administration would go after our 401(k) and IRA savings plans.

Disgusting, but logical.

Here's how the argument is likely to be framed.

The system we presently have in place is what's commonly called a "defined contribution plan." Under such a plan, the benefits we enjoy during retirement aren't determined in advance. Instead, those benefits are determined by how much money we contribute while working, and by the performance of the investments that we choose. The 401(k) is almost exclusively a defined contribution plan.

Years ago, Americans depended more upon "defined benefit plans" that promised a steady stream of income at a future date - with the actual amounts determined by our years of service or our earnings history. Old-fashioned company pension plans and even U.S. Social Security are examples of defined benefit plans.

By laying claim to our retirement assets in exchange for 30-year Treasury bonds, annuities or other payout streams, the government will try to persuade us that we're not capable of managing our own money, that the stock market is too risky a place for most Americans, and that we need Big Brother to hold our hands and protect our futures.

What we need, the administration is going to tell us, is a defined benefit plan.

So expect a big snow job. But here's the problem.

Defined benefit plans are great only as long as they are well funded. Unfortunately, most aren't.

In fact, according to various studies, pension funds could already be underfunded by as much as $5.3 trillion. Add that to the $14 trillion we've already got on the table and we're talking a staggering $19.3 trillion - and that's with no escalators, no cost-of-living adjustments and no interest-rate increases. And that's assuming we don't need another round of stimulus.

Here's what the government isn't going to tell you. When pension funds transition from defined contribution plans to defined benefit plans, the only backing they have is the underlying assets themselves and the company or entity that's responsible for the plans - which in this case would be the U.S. government.

If the prospects of your entire future being placed in the hands of the federal government doesn't scare the daylights out of you after all we've experienced so far, I suspect that nothing will.

Our elected leaders, appointed government guardians, and Wall Street have together demonstrated a total inability to manage what they already control. There's no reason on the planet why they should be allowed to get their hands on our hard-won savings. All that will do is punish the thrifty, disciplined and far-sighted investor, while rewarding - or at the very least protecting - the inept politicians and career bureaucrats who allowed this crisis to occur in the first place.

By backing their plan with 30-year Treasuries, government backers of this plan are betting that you and I won't notice that the trouble with annuities and long bonds is that they tend to get annihilated by inflation. That's why even the most jaded professionals will tell you that investing in such instruments right now when interest rates are being artificially held down near 0.00% is bad juju: Interest rates have only one direction to travel - up, which tends to crush bond prices.

Right now, Americans are apparently smarter than the administration believes. In fact, a survey by the Investment Company Institute found that more than 70% of all households disagreed with the idea of requiring a retiree to buy an annuity with a portion of their assets. And it didn't matter whether the annuity was offered by an insurance company or by the government.

Let's hope that the full-court press that the administration is getting ready to deploy doesn't snow American investors. If the government succeeds, we'll look back and see that they pulled a pretty slick trick to get our support.

Unfortunately, it won't be the last trick they play with our retirement money. That last trick will come after they have control of our savings - when they make our retirements disappear.

Demand that Congress Pass the "Keep Your Hands Off My 401(k) Act of 2010"

March 4, 2010

Washington's Blog - Last May, I wrote about the rumor that the Obama administration might seize funds from American's 401k and IRA accounts.

On January 8, 2010, Bloomberg pointed out:

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 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...

There is “a tremendous amount of interest in the White House” in retirement-security initiatives, Borzi, who heads the Labor Department’s Employee Benefits Security Administration, said in an interview.

In addition to annuities, the inquiry will cover other approaches to guaranteeing income, including longevity insurance that would provide an income stream for retirees living beyond a certain age, she said.

“There’s been a fair amount of discussion in the literature taking the view that perhaps there ought to be more lifetime income,” Iwry, a senior adviser to Treasury Secretary Timothy Geithner, said in an interview...

One proposal raised by Iwry as co-author of a paper while at the Retirement Security Project, before joining the administration, has reached Congress. A bill requiring employers to report 401(k) savings both as an account balance and as a stream of income based on an annuity was introduced on Dec. 3 by Senators Jeff Bingaman, a New Mexico Democrat, Johnny Isakson, a Georgia Republican, and Herb Kohl, a Wisconsin Democrat.

Sounds innocuous, right?

Maybe.

But Karl Denninger and Jesse smell a rat.

Denninger writes:

In a short conversation this noontime ... Rick Santelli was talking about a potential to effectively force money into the Treasury market.

Where would they get this?

From your 401k and IRA accounts!...

Let me tell you what this is - it is an attempt to prevent the collapse of the Treasury market!

Forcing people into Treasuries as an "annuity" is exactly what Social Security allegedly is. Except that Treasury stole the money that was collected in FICA taxes and spent it!

Guess what? They'll do that here too - you're going to "invest" in Treasuries which of course are effectively a CALL option on the future taxing ability of the government.

The problem is that with an aging population and the immigrant problem (illegal immigrants that is), along with offshoring, the aggregate wage base will drop and thus this is the most dangerous investment of all!

What's even worse is that the government has intentionally suppressed Treasury yields during this crisis (and will keep doing so by various means, including manipulating the CPI - the "inflation index" - as they have for the last 30 years) so as to guarantee that you lose over time compared to actual purchasing power...

"Choices" have a funny way of turning into mandates, and this looks to me like a raw admission that Treasury knows it will not be able to sell its debt in the open market - so they will effectively tax you by forcing your "retirement" money to buy them!

This may be the only way for Treasury to hold down interest rates to something reasonable in the intermediate term, but doing so will instantaneously remove a major source of funding for the stock market - that is, the monthly and quarterly inflows from retirement accounts.

You can bet this won't be good for you, the ordinary American.

You can also bet that once such an "option" is made available there is a very high probability of the government doing things that either promote or simply don't stand in the way of another stock market crash as a means of "herding" your money into Treasuries - so they can blow it - all under the guise of being allegedly "safe".

Of course this begs the question - what if the government can't pay down the road when you retire, just as they can't pay on a forward basis with Social Security and Medicare?

This "proposal" can only mean one thing - Treasury smells smoke. Maybe you should pay attention to what they're huffing!

And before you say "oh they'd never do that" I want you to read this:

Here is a warning to us all. The Argentine state is taking control of the country’s privately-managed pension funds in a drastic move to raise cash.

...

My fear is that governments in the US, Britain, and Europe will display similar reflexes. Indeed, they have already done so. The forced-feeding of banks with fresh capital – whether they want it or not – and the seizure of the Fannie/Freddie mortgage giants before they were in fact in trouble (in order to prevent a Chinese buying strike of US bonds and prevent a spike in US mortgage rates), shows that private property can be co-opted – or eliminated – with little due process if that is required to serve the collective welfare.

Jesse has a similar take:

As a rule of thumb, the worst possible time to convert lump sum savings into a fixed income annuity would be when interest rates are historically low.

Although products may vary, this is roughly equivalent to buying long term bonds at a time when interest rates are likely to increase, substantially reducing your principal in real terms, and eroding your fixed returns through inflation.

For some reason the Obama Administration is promoting the idea now that there should be some encouragement for Americans to start converting their 401K's and IRA's into annuities, to provide themselves with lifetime income.

The effort is being spear-headed by Mark Iwry of the Treasury and Phyllis Borzi of the Department of Labor. Here is a paper written on the subject by Mark Iwry when he was at the Brookings Institution [financial elite's think tank].

The essence of this paper is that distributions from IRA's and 401K's would automatically be rolled into an annuity providing a monthly income by default.

This concept is known on the Street as the handling fees for meager returns pork barrel pigfest. The Fed likes it because they will undoubtedly get a two year rolling chunk of the people's retirement cash to play with.

Perhaps just rolling those 401K's and IRA's into Social Security or the Long Bond would be what they have in mind. Somehow the panacea of TIPS with inflation defined by the government sounds probable. The drawback perhaps is that this would not generate the highest recurring fees for Wall Street and the FIRE sector, which have to be eyeing that 'cash on the sidelines' hungrily.

How about Patriot Bonds that are fully invested in Mortgage Debt formerly owned by the Fed, with some tranches of Commercial Real Estate to add some zest to the recipe? The Treasury can give this option a small tax break, which can be largely consumed by Wall Street fees and mispricing of risk returns ...

My model for thinking about this annuitization is that the government wishes to appropriate your savings for a 2.0% return, ex fees and mispriced risk and inflation, as a source of funding for the bailouts of an oversized and insolvent FIRE sector (like AIG) and the imploding pretensions of a global financial elite...

Administration Explores R Bond For Retirement Accounts - Investment News (June 7, 2009)

Why have a separate "R Bond" instead of those government bonds they have now called 'Treasuries?' And why have a mandatory universal retirement system when you have this thing called 'Social Security?' Think about it. Sounds like the kind of preparations governments make for things like 'new dollars' after a selective default.

Are Denninger and Jesse right?

I don't know ... we'll have to wait and see.

Mandatory IRAs May Burden Small Employers, Business Group Says

January 25, 2010

Bloomberg BusinessWeek - U.S. President Barack Obama’s effort to increase retirement savings by requiring all businesses to offer automatic IRA accounts may face opposition from small companies, says a Washington-based trade group.

Obama said the plan, part of a tax package aimed at middle- income Americans proposed today, would let employees automatically enroll in direct-deposit retirement accounts and expand matching tax credits. The administration hasn’t released a cost estimate.

“When small businesses are struggling to stay afloat, we oppose mandates such as this that stand to create a new administrative burden,” said Molly Brogan, vice president of public affairs for the National Small Business Association, in an e-mailed statement.

Sixty-four percent of small-business owners said revenue declined in the past 12 months, the highest percentage since 1993, according to a December national survey of 450 small- business owners conducted by the NSBA, which represents more than 150,000 small businesses.

“I don’t know that there’s been enough thought to how certain small businesses, restaurants in particular, would comply with this if they don’t use a payroll company or participate in direct deposits,” said Brogan.

Almost 80 million Americans don’t have retirement accounts through their employers, according to the government. About 63 percent of low-income workers may have no savings at retirement to supplement Social Security, according to a report by the Government Accountability Office.

Fill the Gap

“The automatic IRA has the advantage of being able to fill in the gap,” said David C. John, who developed an automatic-IRA proposal with Mark Iwry, now deputy assistant treasury secretary for the Retirement Security Project, a joint venture of Georgetown University’s Public Policy Institute and the Brookings Institution in Washington.

A worker automatically enrolling in a retirement savings account would likely make contributions through payroll deductions into one of several investments including a stable- value fund, a special-issued U.S. savings bond, and a target- date fund that automatically shifts investments from more aggressive assets to more conservative ones closer to retirement, John said.

The accounts would likely be Roth IRAs where taxes are paid upfront to lower the budgetary cost rather than taxing withdrawals during retirement. Employees would be able to opt- out of the savings program, John said.

Investment Limit

The automatic IRA may have the same annual investment limit as existing IRAs, which is $5,000 for savers under the age of 50 and $6,000 for savers 50 and over, John said. An employer would have access to a Web site created by the government that would help them find a bank, brokerage firm or mutual fund company to administer the accounts. A freelancer or contract employee would also have the opportunity to participate, he said.

The administration also proposed today expanding a tax credit, known as the “saver’s credit,” to match 50 percent of the first $1,000 of contributions by families earning as much as $65,000 and provide a partial credit to families earning up to $85,000. The tax credit would be refundable so that families would receive it even if they had no tax liabilities.

Senator Jeff Bingaman, a New Mexico Democrat, and Representative Richard Neal, a Massachusetts Democrat, previously introduced bills to establish automatic enrollment in IRAs. Bingaman is working on a new version of the bill, said spokeswoman Jude McCartin.

“We expect that a final bill will be ready for introduction in the coming weeks, and the goal will be to get it enacted before the end of the year,” McCartin said.