We have written here previously about the government's need to save "entitlements" and other sacred cow programs especially now with the fiscal cliff approaching. So how does one save these programs without devastating the economy?
Our belief is that the leadership in Congress and the White House have been looking at various choices, none of which will be good. However, one that has to be enticing is the "rolling over" of assets in your 401(k), IRA, 403(b) or 457 plan into Social Security.
As the following article indicates, these assets are in excess of $5 Trillion dollars. What a juicy target! There are a couple issues that Congress would have to resolve before this plan could go forward. These assets are for the most part pre-tax and therefore taxes have not been paid on them, so handling the taxation issue would be thorny. Could someone really be forced to pay taxes on dollars they would not receive until they went onto Social Security? Or would the taxes only be due upon receiving the benefit?
Secondly, how would the increase in a participant's Social Security be calculated? Would it be based upon mortality tables? Would any interest be imputed into the length of time that the government held your money before you could collect?
Lastly, would Americans rebel at having their retirement assets "seized/confiscated" by the government even though it was saving Social Security? Would this cause the average Joe/Jane to get off their backsides?
The one issue that is also not discussed by those promoting this plan (we are not in that group) is that today, if you die, your retirement assets will pass to whomever you want. If they are moved to the Social Security system, would your beneficiaries be able to get them back if you die before receiving them or would they be moved to the beneficiaries Social Security account(s)?
There are lots of questions and few answers but with the amount of money on the table one can expect that it is getting intense attention. By the way in the past few years, there have been Congressional hearings on this idea. At that time nothing occurred, however, once an idea is broached, it rarely is forgotten.
We will continue to monitor the situation as we approach the cliff and beyond and should anything be reported, we will get the information to you.
Conservative Tom
Cerulli: IRA assets total $5.3 trillion in Q1 2012
Photo credit: KROMKRATHOG
Individual retirement account assets reached an estimated $5.3 trillion in the first quarter of 2012, a nearly 9 percent rise over the $4.8 trillion in estimated assets for 2011, according to a new report.
Cerulli Associates, Boston, released this finding in the November edition of “Evolution of the Retirement Investor 2012: Understanding 401(k) Participant Dynamics and Trends in Rollover and Retirement Income,” a Cerulli Special Quantitative Update. The report includes an analysis of defined contribution plan participants, individual retirement account (IRA) assets and the rollover decision, and the retirement income landscape.
Rollover contributions totaled $307 billion in 2011. Nearly two-thirds of the assets (65.4 percent or $207 billion) were rolled over through an advisor, the average balance of a rollover totaling $115,000. Of the $201 billion, 83 percent ($167 billion) was handled by an existing advisor. The balance ($34 billion or 17 percent) went through a new advisor, the research shows.
The remaining retirement assets were, the report adds, rolled over to a self-directed IRA ($105 billion) or a new employer’s plan ($2 billion.)
More than half of the survey participants (52.2 percent) indicated they rolled over their 401(k) balance“immediately after leaving” an employer-sponsored plan. Smaller percentages of plan participants took action within a year of leaving (24.7 percent), still hold an account with their employer (12.8 percent), waited more than years after leaving before taking action (5.8 percent) or acted within two years of their departure (4.6 percent).
More than 7 in 10 of the plan participants said either they were not sure whether their plan charges aninvestment fee (37.4 percent) or said there were no fees (35.3 percent). Fewer respondents noted their plan charges investment fees that also pay for administration fees (10.9 percent), investment fees and an additional administration fee (10.5 percent) or an investment fee only (6 percent).
When asked about factors to consider when determining how much to contribute to their 401(k) plan, almost half of those polled (48.6 percent) indicated a matching contribution by their company. More than 4 in 10 (42.3 percent) flagged their personal budget.
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