Government Eyeing Private Retirement Plans

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by Bryan Baumgart - 11/29/2012

The Plot

As explained in a recent NY Times editorial, Teresa Ghilarducci, a professor of economics at the NewSchool originally testified before the House Committee on Education & Laborin 2008.  Her plan explained below has begun picking up traction amonglawmakers. Under Ghilarducci's plan, tax free contributions to private retirement accountswould be eliminated and money currently located in private 401(k)s would beseized by federal edict and used to establish government run pensions sherefers to as Guarantee Retirement Accounts (GRA's). The funds would be placedwith the terribly mismanaged Social Security Administration. You would then berequired to surrender 5% of your pay into the GRA's until you retire. If youdie before collecting the money, it goes to Washington rather than your heirs,even if you worked hard and did a fantastic job of saving and investing yourhard earned money. Failure to comply would be punishable by fines and jailtime. Ghilarducci's congressional testimony can be seen here.

The Problem

Many Americans have chosen or have not been able to contribute enough money toprivate retirement accounts. Couple that with unfunded public pensions, afailing social security fund, and devastating effects of the economic downturnon 401(k)s, and we are left with  a largenumber of Americans nearing retirement without any way to fund it.


Class Warfare

Liberals have derided the fact that only half of Americans own and actively manage their 401(k)s. Of that 50%, veryfew are able to contribute the maximum 17% allowing them to take full advantageof the tax breaks. They claim private retirement accounts favor the wealthy anddemand seizure of 401(k)s in the name of economic justice!


Why Now?

The government has found itself underwater and the leg cramps are beginning toset in. Realizing Washington is missing out on an estimated $50 - $70 billion dollars worth of tax revenue each year; officials have introducedplans to end those tax credits, initially offered to encourage savings byindividuals. (*Note: Many liberals will claim a higher estimate, intentionallyassuming that all 401(k) money is invested in bonds when in reality, two thirdsof 401(k) assets are invested in equities where gains are taxed only whenrealized and both dividends and gains are taxed at a preferential rate of atmost 15 percent.)

Realizing that $50 - $70 billion dollars is onlya drop in the bucket of our $1 trillion dollar + annual deficit, officials areconsidering extending their plot to include seizing private 401(k)s to purchasegovernment bonds in order to cushion the government's spending problem.


The Cold Hard Truth

"The government is making a play to suck the last bit of capital from capitalism." - Rush Limbaugh

There is no arguing that Americafaces a looming crisis as the 401(k) generation nears a significantlyunderfunded retirement. The question is what should be done about it? Does a government that promised tax free contributions have a right to renegeon that promise?  Does a government that encouraged private savings have aright to turn around and seize the fruits of one's labor to help alleviate theproblem they created?  Does anyone reallybelieve that the government would do a better job looking out for yourretirement than you would?  Thegovernment has already spent and bankrupted our saving in the social securitytrust fund?
Should reform start by addressingWHY American's have not been willing or able to contribute to their 401(k)s?

There is no question that reform is necessary! The question is...how shouldthat reform look?