Is the Obama Administration coming for your 401(k)?

Every now and again there is story about how some group is lobbying for government to takeover private 401(k) plans. Not much ever comes out of it, just an acknowledgment of something most of us already know…the government wants our money.

So it shouldn’t come as a surprise to hear that the Obama Administration wants to encourage retirement account holders to convert to an annuity:

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.

The “good news,” using that term loosely, is that it’s voluntary…at least for now. How long would that last? Probably not long. You also have to question the use of the word “annuity.” Social Security is basically an annuity, though there are some differences. Why not just say you’d be investing your retirement in the Social Security system?

Well, because the system is broken and the rate of return is terrible, around 1.5 percent.  The 2008 Financial Report of the United States Government shows a $17 trillion long-term, unfunded liability for Social Security. That’s not exactly sustainable, and it only represents a portion of unfunded liabilities we face as a result of our entitlements. That doesn’t even account for Medicare (add another $31+ trillion). There are band-aids that could be applied, such as raising the cap on withholding (increasing taxes). That is, however, only a temporary fix that puts economic growth at risk.

On the other hand, the stock market has averaged a rate of return of 8 percent over the last sever decades and government workers in Galveston County, Texas, which opted out of the Social Security system in 1983 before the loophole was closed, that have private accounts have a rate of return of 6.5 percent.

So, why does the Obama Administration want to do this? Because Congress has spent too much money, as Dale Franks explains:

There literally isn’t enough money in the world to float the T-notes the Treasury must issue in order to prop up our unsustainable spending path.  There are, however, about $3.6 trillion in funds just sitting in 401(k) accounts.  If the government can urge–or force–you to convert your 401(k) into T-note funded annuities, the Treasury can continue to issue those notes to float the government’s deficit.  Essentially, you’ll be converting your retirement funds into an IOU from the government…just like your social security account has already done.

This will allow the Treasury to keep borrowing money–from your retirement–in order to keep issuing more debt that they may or may not be able to pay back to you.

You have to think that this is politically unfeasible, especially in an election year. However, it is another reminder that politicians do not view what you earn as yours. They seem to believe that it belongs to the government and they just let you keep what they think you should have. Nevermind the hours of hardwork you put in at your job, they want your money.


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