Sunday, February 21, 2010

Democrats next target: 401(K) savings

Business Insurance reports that the Labor and Treasury departments are seeking comments about converting private retirement plans into government-backed annuities:
The Department of Labor and the Treasury Department have put out a request for information on the use of annuities in defined-contribution plans.

Both agencies are reviewing the Employee Retirement Income Security Act of 1974, as well as the plan qualification rules in the Internal Revenue Code, on using annuities in retirement plans. The agencies filed a request for information, which was published in the Feb. 2 issue of the Federal Register.

Specifically, the Labor Department and Treasury want to know the advantages and disadvantages of receiving retirement benefits in the form of incremental payments. They also seek an explanation for why most retirees, when faced with a choice of a lifetime income option or a lump-sum distribution, choose the lump-sum option.

The agencies also want to know what information 401(k) participants need in order to make informed choices on whether they should choose a lifetime income option, and how that information should be provided.

The request comes just as interest in the use of such investments in 401(k) plans is rising in Washington.

A fact sheet released last week by President Barack Obama’s Middle Class Task Force said the administration would promote “the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reducing the risks that retirees will outlive their savings.”
Newt Gingrich and Peter Ferrara explain what this "information request" really means in Investors' Business Daily:
In plain English, the idea is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years.

They will tell you that you are "investing" your money in U.S. Treasury bonds. But they will use your money immediately to pay for their unprecedented trillion-dollar budget deficits, leaving nothing to back up their political promises, just as they have raided the Social Security trust funds.

This "conversion" may start out as an optional choice, though you are already free to buy Treasury bonds whenever you want. But as Karl Denninger of the Market Ticker Web site reports: "'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."
Think of it as a mandatory reverse mortgage on your retirement savings.  John Hinderaker at Powerline doesn't think the government will actually be able to pull this one off, not because it's an illegal confiscation of private property, but because the lawyers won't put up with it:

Will it happen? Clearly the Obama administration, inspired by Argentina, is exploring the option. Today, we have the first administration in American history that aspires to be a banana republic. But can they get away with confiscating millions of Americans' savings? I doubt it. Because first on the list of those who have accumulated wealth in reliance on the laws governing private savings accounts are lawyers. Most people don't realize it, but even lawyers of modest ability typically have, after three or four decades of diligent savings, seven-figure retirement accounts. (This is one reason why influential Democrats don't care whether Social Security goes bust. They wouldn't dream of depending on it.) Lawyers are the heart and soul of the Democratic Party; public employee unions are more important in some ways, but they are junior partners in the Dems' coalition.

If the Obama administration were to announce an intent to confiscate Americans' retirement savings, the howls that would arise from lawyers (and others, too, of course) would be deafening. I don't think the administration could get away with it. Which doesn't mean they won't try, as the current efforts by the Departments of the Treasury and Labor indicate.
Hinderaker has a good point about the lawyers, but Democrats have demonstrated time and time again that they are willing to craft extra-legal sweeheart deals that favor the special interests of their base.  The Unions negotiated an exemption to the tax on cadillac health care plans.  Ben Nelson negotiated special Medicaid funding for his state of Nebraska.  Mary Landrieu received $300 million in special Medicaid funding for the state of Louisiana. Why should the lawyer lobby be any different?

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