July 25, 2014

US Government Takes Two More Steps Toward Nationalization of Private Retirement Account Assets

The slow process of the US government to eventually nationalize (seize) private retirement account assets recently took two more significant steps.

Many of you are already aware that back in the early 1990s there was discussion about changing private retirement accounts so that the US government could accelerate getting its hands on some of these assets.  Back then the idea was to impose a one-time 15% tax on existing private retirement plan assets and a 15% tax on any new contributions to such plans in return for making later retirement distributions exempt from income taxes.  This plan was being pushed by the White House and the Democrat-controlled Congress early during President Clinton’s first term.  After the Republicans gained control of Congress following the 1994 elections, no further progress was made on this plan.

As long as a Republican was in the White House or at least one chamber of Congress was controlled by the Republicans, the idea of seizing private retirement account assets stayed dormant.  However, I have continued to warn my readers that this multi-trillion dollar pile of assets was too large for the US government to keep its hands off of forever.

The dormancy ended in anticipation that the Democrats would gain the White House and control of both chambers of Congress in the 2008 election.  On October 7, 2008 the House Committee on Education and Labor held hearings titled, “Saving Retirement in the Face of America’s Credit Crisis:  Short and Long Term Solutions.”  The focus of the hearing was a presentation by Teresa Ghilarducci, an economics professor from the New School for Social Research.  You can read her testimony at http://edlabor.house.gov/testimony/2008-10-07-TeresaGhilarducci.pdf. [Editor's note: It appears that the written testimony is no longer available at this location. Go to http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_house_hearings&docid=f:44713.pdf for Professor Ghilarducci's testimony included within a printed version of the full hearing.]

Professor Ghilarducci advocated that, in the short term, “Congress let workers trade their 401(k) and 401(k) – type plan assets . . . for a Guaranteed Retirement Account composed of government bonds (earning a 3% return, adjusted for inflation).”

For her long term solution, she said, “I propose Congress establish universal Guaranteed Retirement Accounts. . . . Every worker (not in an equivalent defined benefit plan) would save 5% of their pay into their Guaranteed Retirement Account to which the government pays a 3% inflation-indexed guaranteed return.”

As part of the plan, at retirement, the assets of the plan would be turned over to the US government, which would then pay an annuity to the retiree.  The retiree’s heirs would not receive the residual assets upon the death of the retiree.  To overcome public resistance, Ghilarducci advocated that this program begin as an optional and voluntary conversion to government accounts and annuities.

In effect, Ghilarducci was advocating a series of small steps that would eventually result in the US government seizing all private retirement account assets and replacing them with US government bonds, under the guise of “retirement income protection.”

The Democrats did take control of Congress and the presidency in 2008.  So, in mid-September 2010 the Departments of Labor and Treasury held hearings on the next step toward achieving Ghilarducci’s goals.  The stated purpose was to require all private plans to offer retirees an option to elect an annuity.  The “behind-the-scenes” purpose for this step was to get people used to the idea that the retirement assets they had accumulated would no longer be part of their estate when they died.

Then the 2010 elections brought the Republicans back in control of the House of Representatives.  As part of my Ten Fearless Forecasts for 2011 in the January 2011 issue of Liberty’s Outlook, I predicted “I suspect that further progress on nationalizing private retirement accounts will be slowed, but will not stop entirely.”

That prediction has now come true.  In the political wrangling over raising the federal debt ceiling, the Treasury borrowed so much money that it exhausted its authority to borrow additional funds.  In a purely political move, the Treasury has started borrowing funds from the federal employees’ retirement program in order to continue deficit spending in anticipation that the debt ceiling will be raised by August.

I can see the political argument now.  “Why should federal employees be the only workers whose retirement assets are ‘temporarily’ loaned to the US government to help avert a fiscal crisis?  Why not force private retirement plans to carry their ‘fair share’?”

But that isn’t the only new development towards the US government controlling private retirement account assets.  On May 18, Senators Herb Kohl (D-WI) and Herb Kohl(R-WY) introduced S. 1020: Savings Enhancement by Alleviating Leakage in 401(k) Savings Act of 2011”, referred to in short as the SEAL 401(k) Savings Act.

The sponsors noted that the 401(k) plans in total are currently underfunded by $6.6 trillion dollars needed to provide reasonable retirements to the retiring workers.  This problem is getting worse because approximately 28% of the retirement plan assets consist of loans made to the beneficiaries.  In today’s difficult economy, more people are seeking such loans and a growing number for these debtors are defaulting on repayment of these loans.  These defaults are described as “leakage” that is reducing the amount of assets available to pay retirement benefits.

While this new legislation provides some extended repayment relief for those borrowers from their 401(k) plans who have lost their jobs, the basic point of the Bill is to restrict the ability of retirement plan beneficiaries to borrow against their future retirement benefits.  For instance, Section 4 of the Bill prohibits making loans through the use of credit cards and other similar arrangements.

Make no mistake, the provisions of this Bill, under the pretense of supposedly helping to protect future retirement benefits, are really making it more difficult for people to gain access to what is supposedly “their assets.”  If this Bill becomes law, it will be one more step toward putting private retirement plan assets under the control of the US government.  Unfortunately, such a move is just one more bit of evidence of the US government’s bankruptcy and shakiness of the value of the US dollar.

The governments of Argentina and, I believe, Hungary have already nationalized (seized) private retirement accounts, so don’t think it can’t happen here.

These two steps toward nationalizing private retirement account assets are simply more reasons to do what you can to move your assets out of the US dollar and beyond the reach of the US government.  Physical gold and silver in your direct possession are perfect alternatives to gain this self-protection.

Patrick HellerPatrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His bimonthly columns on collectibles can also be read at http://www.lansingbusinessmonthly.com under “Articles” and “Department Columns.”His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.

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Comments

  1. William says:

    Great article Patrick even though it’s quite frightening. However, the only part that left me a bit confused was:
    “The sponsors noted that the 401(k) plans in total are currently underfunded by $6.6 trillion dollars needed to provide reasonable retirements to the retiring workers. ”

    Do they know that we’re talking about 401(k)s and not some sort of pension plan?? There is no way a 401k can be underfunded given that the money due to me directly corresponds to the amount I have contributed.
    Bottom line though, its seems that savers are going to be screwed yet again by the system……

  2. Here was the explanation from Herb Kohl, one of the bill’s sponsors: “The gap between what Americans will need in retirement and what they will actually have saved is estimated to be a staggering 6.6 trillion dollars.”

  3. William, you make a sage observation. The 401(k) plans do not a guarantee that they will be sufficient to provide a reasonable retirement income. Apparently, someone in the government has done a macroeconomic study and concluded that the assets set aside are just not enough to cover whatever standard or retirement income the judged sufficient. I don’t know if such a study took into account anticipated Social Security benefits, which might alter the results if that was not factored into the study. Whichever it is, a statistic showing a huge underfunding certainly can be used by politicians as a justification to “do something.”

  4. lureuin says:

    Are you sure this isn’t really Glenn Beck; and WTF does this have to do with coins? Save the politics for another site.

  5. Michael J Hood says:

    Why not pay off the National debt with our gold reserves, unless the Government is hiding the fact we don’t have enough?

  6. concerned collector says:

    @Michael J. Hood

    We don’t have nearly enough gold to make a sizable dent in the debt. According to another coins blog I read, the market value the U.S.’s gold reserves is ~$371 billion (the statutory value is ~$10 billion).

  7. William says:

    I get what you’re saying Patrick, but I hope the government truly realizes how moronic they sound. Who are they to say what is “reasonable” for each individual investor?? While some might live frugally and comfortably with $30k a year, others Im sure would feel like paupers with $1mm per year.
    And it really doesnt matter what political party you belong to. Everyone should realize how this detrimentally affects all.

  8. John Kennedy says:

    Thanks for the heads up on this, Mr. Heller. Keep up the good work.

    Retirement planning sure requires vigilance these days.

  9. Brice says:

    We’re going to take your 401(k) to save it! Who believes that?

  10. StayPuff says:

    @Brice

    That would be pretty much everyone who was gullible enough to vote for our current president. You’d be surprised how easily people are deceived these days. If the state-run media says it’s true, then it MUST be! They wouldn’t lie to us. Right?? ;-)

  11. Cheri says:

    Here’s a good question: What is the best way to handle this if you are a person who has worked hard and socked away your money in IRAs for retirement? We are in our mid-40s, so retirement is a ways off yet, but we are wondering what to do. Have been reading, researching and following this govt. money grab of private retirement accounts for about 2 years now.

    I know some who have pulled all their money out in fear of this. Of course, they paid the penalty for early withdrawl. I sometimes wonder if the govt. is trying to scare people into early withdrawl so they can get the 10% penalty and the amount you pay in taxes on the money NOW—sure seems like either way, those that saved for retirement themselves are screwed. Draw it out early and pay the govt. or wait and get screwed over later with the new GRA they are talking about.

    One note…..The Govt. Retirement Accounts (GRA’s) they are planning: Withdrawl age is being discussed as 67-69 AND controlled/dished out by the govt AND most importantly……..if there is anything left in the account when you die your family will never see it. The govt. gets to keep it once you are dead and gone. Doesn’t that just suck! 3% sucks too……my investments over the years are way beyond the govt. guaranteed percentage despite this economy.

    Rotten, stinking cow dung = GRA

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