Does the federal government want to “seize” your 401(k)?

Is this for real? Turns out … could be. The government certainly is thinking about getting a piece of the retirement savings pie and is floating plans to have ‘voluntary’ Guaranteed Retirement Accounts (GRA) whereby the feds would take some of your private retirement money and give you annuities in return that are absolutely, positively guaranteed to give you a steady return over inflation forever. Wowzers, you say, how wondrous is that, tell me more.

The annuities would be issued by insurance companies but guaranteed by the government. What could go wrong with that? Oh wait… Fannie Mae and Freddie Mac were similar, weren’t they? Guaranteed to be about the safest investment ever, except when they went belly up and everyone lost money except for the banksters who got reimbursed in full thanks to Little Timmy Geithner.

So color me skeptical. Because this sounds like a scheme to grab retirement money from the public and use it to among other things pay off short-term debt to – you got it – those very same banksters, just like Ireland, France, and Hungary have done or are about to do. Our retirement funds to not appear safe from a grab by the government.

Feds eyeing private money to finance deficit? Fiscal policy appears headed toward policy like Argentina’s. This is from hard right World News Daily, but as we will see, the threat is well-documented by the government’s own words. By the way, why is it primarily just right-wing sites that are appalled by this? Where is the leftie outrage and suspicion?

Lifetime Income Options For Participants And Beneficiaries In Retirement Plans. Hearing transcript Sept. 15, 2010.

Soon to be Speaker of the House Boehner opposes a proposal by Vice President Biden to enact government-sponsored GRAs (guaranteed retirement accounts) and related congressional testimony supporting elimination of tax deferral for 401(k)s, to be replaced with tax deferrals for GRAs.

House Republicans to Obama Administration: Keep Bureaucrats’ Hands off Americans’ 401(k)s

Annual Report of the White House Task Force on the Middle Class, signed by Joe Biden:

“We need to do more to give families better choices to reach a secure retirement. To ensure that workers have good options to save for retirement, and to provide workers with all the information they need to make the best choices about their retirement savings, the Administration is improving the regulation of 401(k)s to make the system more reliable and transparent. These regulatory actions include:

… Promoting the availability of guaranteed lifetime income products, which transform at least a portion of retirees’ savings into guaranteed future income, reducing the risks that retirees will outlive their savings or that their living standards will be eroded by investment losses or inflation. …

In addition to the proposals discussed above, this Administration has already taken smaller steps to strengthen retirement security through direct administrative actions. President Obama has already announced, and this Administration has begun to implement, a series of common-sense measures to help workers save for retirement. These include:

• Making it easier for small businesses to help their employees save by automatically enrolling their workers in a 401(k) or a “SIMPLE” individual retirement account plan.

• Making it easier for people to save their Federal tax refunds by letting them choose to receive their refund as a savings bond that can be deposited into IRAs or bank accounts.

• Making it possible for employers to allow workers to put payments for unused vacation and sick days in to their retirement plans, an option that is not currently available to most workers.

… All workers, no matter their level of financial sophistication, should have access to well-diversified lowcost investment options. They should also have an easy way to put a portion of their savings in a safe, inflation-protected investment choice. While Treasury Inflation-Protected Securities (TIPS) and I Savings Bonds offer this kind of protection today, many investors are unfamiliar with them or lack an easy way to access these options in their retirement accounts. To address this, some have suggested the creation of Guaranteed Retirement Accounts (GRAs), which would give workers a simple way to invest a portion of their retirement savings in an account that was free of inflation and market risk, and in some versions under discussion, would guarantee a specified real return above the rate of inflation. These accounts would allow workers to be sure that the funds invested in them will grow steadily without the risk of a market collapse.

This is not possible. At all. Ever. Period.

GRAs would not replace Social Security, which provides and will continue to provide a dependable retirement income on which tens of millions of Americans rely, and most workers will want to continue to have a mix of assets with different risk and return profiles in their overall retirement portfolios. But in combination with the proposals above, increased access to safe investment options may provide a more secure retirement for American workers. The Task Force recommends further study of these issues.

Senate Special Committee on Aging

Statement of J. Mark Iwry, Senior Advisor to the Secretary of the Treasury and Deputy Assistant Secretary for Retirement and Health Policy, US Department of Treasury, Washington, DC

“…Congress, the Executive Branch, and many in the private sector have repeatedly expressed concern that Americans do not save enough and have emphasized the importance of long-term saving both for personal financial security and in the interest of expanding investment capital, promoting productivity, and continuing to raise our standard of living. To that end, the President has proposed, and the Administration is strongly committed to pursuing enactment of legislation to achieve a major breakthrough in retirement savings coverage and encourage Americans to become a nation of savers.

Building on the success of automatic enrollment in workplace payroll-based savings vehicles such as 401(k) plans, the President’s FY2011 Budget would provide for automatic IRAs for those not covered by employer-sponsored retirement plans.the President’s FY2011 Budget would provide for automatic IRAs for those not covered by employer-sponsored retirement plans. It would also expand the Saver’s Credit to encourage savings by low- and moderate-income workers in employer plans and IRAs by increasing the financial incentive to save for the tens of millions of workers who are not in the higher tax brackets, i.e., the majority of working American families. See General Explanations of the Administration’s Fiscal Year 2011 Revenue Proposals, Department of the Treasury, February 2010, pp. 16-20. …

Automatic sounds like mandatory to me. Plus employers who do not otherwise have retirement plans for employees would be required to put in 3% of their income. This is a hidden tax.

Aspen Institute testimony on creating a hybrid public/private annuity system in conjunction with Social Security

Worried yet? I am.

  • woody

    House Republicans to Obama Administration: Keep Bureaucrats’ Hands off Americans’ 401(k)s

    Really? Wow… That’s quite a change, since just 4 years ago they were pushing to force everyone to move away from Social Security and into the market. Imagine if that had happened, where would the program be now? After the sharpest fall in the market in history? Suddenly it would be a terrible idea to have the government try to meddle with retirement savings.

    I’m willing to bet within the next 12 months that whole idea gets turned around again as they take power and again try to force the country to move everything into the market again.

  • woody

    Automatic sounds like mandatory to me.

    It doesn’t to me, since they use the same verbage around “automatic enrollment in workplace payroll-based savings vehicles such as 401(k) plans”. Last I looked, it was not mandatory to have a 401(k) if your employer offered “automatic” enrollment in such a plan. I think what they’re saying is that a program will be automatically available, just as a 401(k) option is automatically available from most employers when you’re first hired.

    The current issue with IRAs is that most employers don’t have a path setup to do automatic deductions from payroll to drop money into them. If one wants to contribute to an IRA, there are hoops to jump through to get the deduction setup, assuming your HR department can do it at all. (Or, in the case of a Roth, you have to write a check and mail it off yourself, which most people have issues doing reliably with rent/mortgage checks.)

    The way I read it, they’re going to offer a universal program to channel money into an IRA-like account, available to all employers, probably using the same channels that exist now to feed in federal taxes. That part sounds like a great idea. The issue of who is managing it, the federal guarantees, etc… Well, that all doesn’t sit well with me, not knowing the details. But the option to divert money into a savings account automatically, even if your employer doesn’t currently offer any 401(k) or savings programs sounds like a nice thing to add.

    • I think the plan they are floating is mandatory if an employer does not already have a retirement plan, and the employer must match 3% of the salaries into these magical new guaranteed-not-to-fail bonds.

      • woody

        Again, everything I’m seeing is implying that it must be made available as an option one may choose, not that employees must participate in it.

        And I’m not seeing anything about matching funds anywhere. Currently even for 401(k) there’s no requirement to provide matching funds. Most large companies only provide a match because the caps on individual contributions per year are higher if a match is made by the company. (So the big wigs making >$350K a year can stash away more into their 401k then they would be able to normally if the didn’t offer matching.)

        I’m also very skeptical of the “guaranteed returns” thing. But even just setting up a government bond based IRA account, offered to every worker as a deposit option right out of their paycheck is a good idea IMHO.

          Under the Automatic IRA Act of 2010, employees of firms with 10+ employees that do not sponsor a retirement plan would be automatically enrolled in IRAs at their workplace. Contributions would be purely voluntary; employees would be free to opt out at any time.

          But, it appears the employer has to match 3% regardless of employee contribution anyway.

          Amount. Employers will contribute a default percentage of an employee’s paycheck into the employee’s Auto IRA account. The bill sets the default at 3% (or such other percentage prescribed in regulations). Employees can raise or lower their contribution percentage, or can optout entirely from the program.

          It defaults to a R-bond, which may be the supposed can’t-lose bond / annuity the government is proposing issuing.

          The problem with plans like this is they may start semi-voluntary but morph into mandatory several years later. And, no, I do not trust the government when they say their magic bond can never lose money, especially when they will be handled by insurance companies.

  • DJ

    Looks to me like they’re (not so) subtly preparing us for a future in which Social Security doesn’t pay the bills…

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