Retirement Savings Soon To Be Converted To Government Bonds

We wrote the following piece on February 22, 2010. Then earlier this year President Obama proposed "My RA" which is a great way for the government to take over your 401k, IRA, 403b, 457 or any other retirement vehicle.

 Most people will not complain as they will not realize their savings had been stolen from them! Most will think it is a great idea to ensure they get a consistent rate of return. That is how uninformed most people are.  

We expect that it will happen sometime after the election and definitely  before the end of the "Dictator's" reign!

Conservative Tom

Good bye 401k? 

In late 2008 we heard of House Of Representatives hearings on the the possibility of the government taking over 401k and similiar plans. Until early January we had not heard of anything, however, in January President Obama proposed a new program based on the Administration's Middle Class Task Force. I will be forwarding you an article that appeared in Business Week and in Bloomberg regarding the proposals. The attached article goes a bit farther.

Please read it and let me know what you think!



Bloomberg
Retiree Annuities May Be Promoted by Obama Aides
By Theo Francis

The government is looking at ways to promote the conversion of 401(k)s and IRAs into steady payment streams after a significant decline in plan balances

(Bloomberg) — 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.

Annuities generally guarantee income until the retiree's death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.

"There's a real desire on a lot of people's parts to try to encourage something other than just rolling over a lump sum, to make sure this money will actually last a lifetime," said Certner, legislative counsel for Washington-based AARP, the biggest U.S. advocacy group for retirees.

Promoting annuities may benefit companies that provide them through employers, including ING Groep NV (INGA:NA) and Prudential Financial Inc. (PRU), or sell them directly to individuals, such as American International Group Inc. (AIG), the insurer that has received $182.3 billion in government aid...

Posted 22nd February 2010 by tom vorenberg

Now A More Recent  article:

GOVERNMENT LAYS GROUNDWORK TO CONFISCATE YOUR 401K AND IRA: “THIS IS HAPPENING”

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Mac Slavo
SHTFplan.com
February 14, 2014

This morning Reuters obtained a leaked proposal disclosing that European Union officials are looking for new and innovative ways to fund their immense debt levels.

Image: U.S. Dollars (Wikimedia Commons).

As noted by Zero Hedge, they’re no longer turning exclusively to central bankers to simply print more money as needed. Because last year’s bank bail-in forcing the confiscation of funds from average depositors in Cyprus worked so well, EU regulators and bankers have determined that they’ll use a similar method to fund their future endeavors.

In a nutshell, and in Reuters’ own words, “the savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis, an EU document says.”

…

The solution? “The Commission will ask the bloc’s insurance watchdog in the second half of this year for advice on a possible draft law “to mobilize more personal pension savings for long-term financing”, the document said.”

Mobilize, once again, is a more palatable word than, say, confiscate.

This is what happens when governments run out of money.

But if you think this is limited to just Europe, then consider the words of President Barack Obama in his recent State of the Union address.

For all intents and purposes, a similar groundwork is being laid right here in America.

They’ve already taken over the health care industry… why not nationalize our retirement savings while they’re at it?

(Reprinted with permission from Sovereign Man. You can read the full analysis here.)

This is basically the offer that the President of the United States floated last night.

And like an unctuously overgeled used car salesman, he actually pitched Americans on loaning their retirement savings to the US government with a straight face, guaranteeing “a decent return with no risk of losing what you put in. . .”

This is his new “MyRA” program. And the aim is simple– dupe unwitting Americans to plow their retirement savings into the US government’s shrinking coffers.

We’ve been talking about this for years. I have personally written since 2009 that the US government would one day push US citizens into the ‘safety and security’ of US Treasuries.

Back in 2009, almost everyone else thought I was nuts for even suggesting something so sacrilegious about the US government and financial system.

But the day has arrived. And POTUS stated almost VERBATIM what I have been writing for years.

The government is flat broke. Even by their own assessment, the US government’s “net worth” is NEGATIVE 16 trillion. That’s as of the end of 2012 (the 2013 numbers aren’t out yet). But the trend is actually worsening.

In 2009, the government’s net worth was negative $11.45 trillion. By 2010, it had dropped to minus $13.47 trillion. By 2011, minus $14.78 trillion. And by 2012, minus $16.1 trillion.

Here’s the thing: according to the IRS, there is well over $5 trillion in US individual retirement accounts. For a government as bankrupt as Uncle Sam is, $5 trillion is irresistible.

They need that money. They need YOUR money. And this MyRA program is the critical first step to corralling your hard earned retirement funds.

At our event here in Chile last year, Jim Rogers nailed this right on the head when he and Ron Paul told our audience that the government would try to take your retirement funds:

I don’t know how much more clear I can be: this is happening. This is exactly what bankrupt governments do. And it’s time to give serious, serious consideration to shipping your retirement funds overseas before they take yours.

As former Congressman Ron Paul notes, the government will stop at nothing.

“They’ll use force and they’ll use intimidation and they’ll use guns, because you can’t challenge the State and you can’t challenge the State’s so-called right to control the money,” warns Paul. “It’s already indicated that they will confiscate funds and they will [confiscate] pension funds.”

This didn’t just happen over night. The move to make this reality has been going on for quite some time. The first time it was mentioned publicly in any official capacity was at a 2010 Congressional hearing:

Democrats in the Senate on Thursday held a recess hearing covering a taxpayer bailout of union pensions and a plan to seize private 401(k) plans to more “fairly” distribute taxpayer-funded pensions to everyone.

Sen. Tom Harkin (D-Iowa), Chairman of the Health, Education, Labor and Pensions (HELP) Committee heard from hand-picked witnesses advocating the infamous “Guaranteed Retirement Account” (GRA) authored by Theresa Guilarducci.

In a nutshell, under the GRA system government would seize private 401(k) accounts, setting up an additional 5% mandatory payroll tax to dole out a “fair” pension to everyone using that confiscated money coupled with the mandated contributions.  This would, of course, be a sister government ponzi scheme working in tandem with Social Security, the primary purpose being to give big government politicians additional taxpayer funds to raid to pay for their out-of-control spending.

You’d think that such an idea would be immediately dismissed by the American public, but it has only gained steam since, as evidenced by a 2012 hearing held at the U.S. Labor Department:

The hearing, held in the Labor Department’s main auditorium, was monitored by NSC staff and featured a line up of left-wing activists including one representative of the AFL-CIO who advocated for more government regulation over private retirement accounts and even the establishment of government-sponsored annuities that would take the place of 401k plans.

“This hearing was set up to explore why Americans are not saving as much for their retirement as they could,” explains National Seniors Council National Director Robert Crone, “However, it is clear that this is the first step towards a government takeover. It feels just like the beginning of the debate over health care and we all know how that ended up.”

…Such “reforms” would effectively end private retirement accounts in America, Crone warns.

A few years ago the government of the United States of America nationalized nearly 1/6th of our economy when they took over the health care system with forced mandates. In the process they essentially took control of $1.6 trillion in yearly industry revenues.

But that’s nothing compared to private savings. The total amount of retirement assets in America, including 401k, IRA and savings accounts is around $21 trillion. With our national debt coincidentally approaching the same, the government sees big money and potentially a way out of our country’s fiscal disaster.

This will start voluntarily with the MyRA and other state-sponsored programs. But when not enough Americans are making it their patriotic duty to turn over their funds to their government, they’ll mandate compliance with the stroke of a pen just as they did with thePatient Affordable Care Act.

And just like Obamacare it will be enforced by the barrel of a gun. Failure to comply will mean confiscation without recourse and prison time.

All they need now is a trigger.

And that trigger will likely come in the form of another stock market collapse. Wipe out Americans’ in a stock market crash and scare the heck out of them with more economic bad news, and millions of our countrymen will be all too willing to hand it over to Uncle Sam. Panic is a powerful motivator and what better way to get people on board than by threatening them with squalor and destitution in their old age if they don’t go along with it?

Government officials have been actively working to make this a reality for years. The Europeans are doing the same.

You can put your head in the sand or cover your ears and pretend this is not happening, but that won’t change the outcome.

They will take everything they can get their hands on.

Monsanto's Pesticides Killing Bees

How You Could Be Killing Billions of Bees… with Your 401(k)

All across the United States, honey bees are dying at an alarming rate.

It’s estimated that nearly 10 million beehives (worth an astounding $2 billion dollars) have disappeared in recent years.

Unfortunately the collapse of beehives shows no sign of letting up, which has left many asking, “What’s causing the collapse of beehives, and what can be done to reverse the destruction?”

In a report released just last year, scientists were finally able to determine the exact reason bees were dying in such great numbers, and the reason is a lot scarier than originally anticipated.

…In a first-of-its-kind study published today in the journal PLOS ONE, scientists at the University of Maryland and the US Department of Agriculture have identified a witch’s brew of pesticides and fungicides contaminating pollen that bees collect to feed their hives. The findings break new ground on why large numbers of bees are dying…

What’s even more disturbing is the fact that the company who is the main producer of these toxic chemicals is also one of the most profitable stocks being traded by many Americans’ 401(k) funds.

I’m talking about the Monsanto Company (NYSE: MON). The creator of the herbicide “Round Up” and the controversial “Agent Orange” continues to be one of the strongest publicly traded companies in the world.

As Monsanto grows, the use of their toxic chemicals on plants across the United States continues to rise as well.

But here’s what most people don’t know… dozens of mutual funds contain Monsanto’s stock. And many of these mutual funds accept 401(k) dollars from employees.

This means that many Americans are unwittingly using their 401(k)s to contribute to the deaths of billions of bees around the world.

Several organizations are actively trying to petition large fund managers to dump Monsanto stock.

But if the past is any indicator of the future, Monsanto will continue to profit from 401(k) dollars, and the company will continue to produce harmful chemicals that reduce bee populations.

Don’t be scared. Be prepared.

Did Obama Just Move Us Another Step Toward 401(k) And Other Retirement Plan Confiscation.

OBAMA STEP CLOSER TO SEIZING RETIREMENT ACCOUNTS

Proposes in SOTU address T-bills for IRA, 401(k)

Published: 4 days ago

 JEROME R. CORSI About | Email | Archive

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NEW YORK – When you hear, “Hello, I’m from the federal government and I want to help you manage your retirement savings,” the best advice is to run away, as fast as you can.

In November 2012, WND reported the Obama administration was exploring a creative way to finance continuing trillion-dollar annual federal budget deficits through forcing private citizens holding IRA and 401(k) accounts to purchase Treasury bonds by mandating the placement of government-structured annuities in their retirement accounts.

Two years ago, WND reported the U.S. Department of Labor and the Treasury Department held joint hearings on whether government lifetime annuity options funded by U.S. Treasury debt should be required for private retirement accounts, including IRAs and 401(k) plans.

It looks like that day is getting closer.

Packaged as a new retirement-savers plan designed for workers whose employers do not offer IRAs or 401(k), President Obama announced in his State of the Union address Tuesday an initiative that allows first-time savers to start building up their savings in Treasury bonds that could eventually be converted into traditional IRAs or 401(k) plans.

While it is not as onerous as an Obama administration directive demanding a certain percentage of individual retirement savings must be invested in U.S. Treasury bonds, it is a first step in that direction.

With the Obama administration having run federal budget deficits in the range of $1 trillion every year in office since 2009, and with the Federal Reserve announcing a new policy to “taper” Quantitative Easing by buying $10 billion a month less in U.S. government debt every month this year until QE hits zero, somebody has to buy all the Treasury debt the Obama administration plans to issue.

In January 2013, the U.S. Consumer Financial Protection Bureau suggested it should play a role in helping Americans manage the $19.4 trillion they have put into retirement savings.

“That’s one of the things we’ve been exploring and are interested in terms of whether and what authority we have,” bureau director Richard Cordray told Bloomberg in an interview.

Under the direction of the Obama White House, the Treasury and Labor departments have increasingly pushed the investment theory that because government bonds carry a sovereign guarantee against default, any IRA or 401(k) funds placed in a Treasury R-Bond would constitute, in effect, a government annuity that would pay the retiree a lifetime income, regardless how stock and bond markets might independently perform.

The government’s argument is that IRA and 401(k) investors lost principal from their retirement savings accounts when the housing bubble burst and the Dow Jones Industrial Average fell from a closing high of 14,164.53 on Oct. 9, 2007, to a closing low of 6,547.05 on March 9, 2009.

Fidelity Investments estimated the average 401(k) fund balances on the approximately 11 million accounts Fidelity manages dropped 31 percent to $47,500 at the end of March 2009, from $69,200 at the end of 2007.

Yet, with the stock-market rally that began in March 2009, Fidelity noted 401(k) account balances increased 28 percent, from a low at the end of the first quarter 2009 of $47,500 to an average of $60,700 by the end of the third quarter 2009.

With the Dow going over 16,000 in the extended rally since 2009, most IRA and 401(k) investors have registered substantial gains, but that could change.

WND has reported that should the stock-market rally turn into yet another financial bubble that bursts, retirement savers with IRA and 401(k) money invested in the stock market could again take serious losses that may take years of patience to regain.

U.S. to follow path of Argentina?

Unfortunately, retirement savers in other nations with high debt that have demanded retirement savings be placed into government debt have fared badly, taking huge losses as debt crises deepened and bond markets began selling the debt at serious discounts.

Writing in the Telegraph of London in October 2008, business and economics editor Ambrose Evans-Pritchard warned that G7 nations, including the United States, may begin following the path of Argentina in forcing privately managed pension funds to be invested in government-issued debt.

In 2008, Argentine sovereign debt was trading at 29 cents on the dollar, reflecting the devalued state of the Argentine peso, with the result that private pensioners holding government debt in their retirement accounts could not be assured those bonds would have any meaningful value at maturity.

“Here is a warning to us all,” Evans-Pritchard wrote. “The Argentine state is taking control of the country’s privately managed pension funds in a dramatic move to raise cash.”

He warned the same could happen in the U.S. and Europe, writing the G7 states “are already acquiring an unhealthy taste for the arbitrary seizure of private property, I notice.”

“It is a foretaste of what might happen across the world as governments discover that tax revenue,” he said.

With the Treasury needing in fiscal year 2010 another $1.4-$1.5 trillion in debt to finance the anticipated federal budget deficit, the Obama administration is obviously scrambling to find new ways to sell government debt cheaply, without having to raise interest rates.

As WND reported last September, Poland confiscated one-half of all its citizens’ private pensions in a move to cut the nation’s debt crisis.

Reuters reported Sept. 4, 2013, Polish Prime Minister Donald Tusk announced a government decision to transfer to ZUS, the government pension system, all bond investments in privately owned pension funds within the state-guaranteed system.

For the time being, the Polish government continued to allow private citizens to keep equity investments that in the Polish state-guaranteed pension system tend to be approximately half of all private pension investments.

Polish Finance Minister Jacek Rostowski said the change will reduce Polish national debt about 8 percent of Polish Gross Domestic Product, or GDP. The move allows the Polish government to resume another round of aggressive debt creation by borrowing in international markets, as reported by ZeroHedge.com.

By confiscating, or otherwise “nationalizing” the bonds held in Polish citizen private retirement accounts, the Polish government, with public debt currently standing at approximately 52.7 percent of GDP, circumvents two threshold restrictions that deter the government from allowing debt to rise to over 50 percent of GDP. A second deterrence kicks in when Polish national debt hits 55 percent of GDP.

Reuters pointed out that by shifting bonds held in private retirement accounts into ZUS, the government can book the assets on the state balance sheet to offset public debt, giving the government more scope to borrow and spend.

As is the case with other nations in the European Union, Poland faced with slowing economic growth, a grim job situation, and declining tax revenues, has been forced to borrow to maintain the nation’s large social welfare system without imposing austerity measures.

The international reaction among private investment advisers was one of shock and dismay.

Poland’s move follows a similar move taken by the Mediterranean island of Cyprus earlier this year. The Cyprus government confiscated 10 percent of the amount in all bank accounts in a move calculated to raise 6 billion euros to meet a condition set by international bankers, including the International Monetary Fond, as a condition of finalizing a proposed Eurozone bailout.

Read more at http://www.wnd.com/2014/01/obama-step-closer-to-seizing-retirement-accounts/#kr14xv2IBWfU3tJ5.99

Could Your Savings Be The Next Target For The Government

They’re Coming For Your Savings

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by John Rubino on October 12, 2013 · 19 comments

Another of history’s many lessons is that governments under pressure become thieves. And today’s governments are under a lot of pressure.

Before we look at the coming wave of asset confiscations, let’s stroll through some notable episodes of the past, just to make the point that government theft of private wealth is actually pretty common.

• Ancient Rome had a rule called “proscription” that allowed the government to execute and then confiscate the assets of anyone found guilty of “crimes against the state.” After the death of Julius Caesar in 44 BC, three men, Mark Anthony, Lepidus, and Caesar’s adopted son Octavian, formed a group they called the Second Triumvirate and divided the Empire between them. But two rivals, Brutus and Cassius, formed an army with which they planned to take the Empire for themselves. The Triumvirate needed money to fund an army of its own, and decided the best way to raise it was by kicking the proscription process into overdrive. They drew up a list of several hundred wealthy Romans, accused them of crimes, executed them and took their property.

• In the mid-1530s, English king Henry VIII was short of funds, so he seized the country’s monasteries and claimed their property and income for the Crown. As historian G. J. Meyer tells it in The Tudors: The Complete Story of England’s Most Notorious Dynasty:

“By April fat trunks were being hauled into London filled with gold and silver plate, jewelry, and other treasures accumulated by the monasteries over the centuries. With them came money from the sale of church bells, lead stripped from the roofs of monastic buildings, and livestock, furnishings, and equipment. Some of the confiscated land was sold – enough to bring in £30,000 – and what was not sold generated tens of thousands of pounds in annual rents. The longer the confiscations continued, the smaller the possibility of their ever being reversed or even stopped from going further. The money was spent almost as quickly as it flooded in – so quickly that any attempt to restore the monasteries to what they had been before the suppression would have meant financial ruin for the Crown. Nor would those involved in the work of the suppression … ever be willing to part with what they were skimming off for themselves.”

• Soon after the French Revolution in 1789, the new government confiscated lands and other property of the Catholic Church and used the proceeds to back a new form of paper currency called assignats. The resulting money printing binge quickly spun out of control, resulting in hyperinflation and the rise of Napoleon.

• During the US Civil War, Congress passed laws confiscating property used for “insurrectionary purposes” and of citizens generally engaged in rebellion.

• In 1933, in the depths of the Great Depression, president Franklin Roosevelt banned the private ownership of gold and ordered US citizens to turn in their gold. Those who did were paid in paper dollars at the then current rate of $20.67 per ounce. Once the confiscation was complete, the dollar was devalued to $35 per ounce of gold, effectively stealing 70 percent of the wealth of those who surrendered their gold.

• In 1942, after entering World War II, the US moved all Japanese citizens within its borders to concentration camps and sold off their property. The detainees were released in 1945, given $25 and a train ticket home – without being reimbursed for their losses.

Since the 2008 financial crisis, various kinds of capital controls and asset confiscations have become common. A few examples:

• Iceland required that firms seeking to invest abroad get permission from the central bank and that individual Icelanders get government authorization to buy foreign currency or travel overseas.

• Greece pulled funds directly from bank and brokerage accounts of suspected tax evaders, without prior notice or judicial due process.

• Argentina banned the purchase of U.S. dollars for personal savings and required banks to make loans in pesos at rates considerably below the true inflation rate.

• The US Fed proposed that money market funds be allowed to limit withdrawals of customer cash in times of market stress.

• Cyprus, a eurozone country, responded to a series of bank failures by confiscating 47.5% of domestic bank accounts over €100,000.

• Poland in September responded to a budgetary shortfall by confiscating the assets of the country’s private pension funds without offering any compensation.

• Spain was recently revealed to have looted its largest public pension fund, the Social Security Reserve Fund, by ordering it to use its cash to buy Spanish government bonds. Currently 90% of the €65 billion fund had been invested in Spanish sovereign paper, leaving the fund’s beneficiaries dependent on future governments’ ability to manage their finances.

Now for the big one, reported by Automatic Earth on Saturday October 12:

The IMF Proposes A 10% Supertax On All Eurozone Household Savings
This is a story that should raise an eyebrow or two on every single face in Europe, and beyond. I saw the first bits of it on a Belgian site named Express.be, whose writers in turn had stumbled upon an article in French newspaper Le Figaro, whose writer Jean-Pierre Robin had leafed through a brand new IMF report (yes, there are certain linguistic advantages in being Dutch, Canadian AND Québecois). In the report, the IMF talks about a proposal to tax everybody’s savings, in the Eurozone. Looks like they just need to figure out by how much.

The IMF, I’m following Mr. Robin here, addresses the issue of the sustainability of the debt levels of developed nations, Europe, US, Japan, which today are on average 110% of GDP, or 35% more than in 2007. Such debt levels are unprecedented, other than right after the world wars. So, the Fund reasons, it’s time for radical solutions.

The IMF refers to a few studies, like one from 1990 by Barry Eichengreen on historical precedents, one from April 2013 by Saxo Bank chief economist Steen Jakobsen, who saw a 10% general asset tax as needed to repair government debt levels, and one by German economist Stefan Bach, who concluded that if all Germans owning more than €250,000, representing €2.95 trillion in wealth, were “supertaxed” on their assets at a 3.4% rate, the government could collect €100 billion, or 4% of GDP.

French investor site monfinancier.com talks about people close to the Elysée government discussing how a 17% supertax on all French savings over €100,000 would clear all government debt. The site is not the only voice to mention that raising “normal” taxes on either individuals or corporations is no longer viable, since it would risk plunging various economies into recession or depression.

Here’s what the October 2013 IMF report, entitled Fiscal Monitor : Taxing Times, literally says on the topic, in the chapter called:

Taxing Our Way Out Of – Or Into? – Trouble
The sharp deterioration of the public finances in many countries has revived interest in a capital levy, a one-off tax on private wealth, as an exceptional measure to restore debt sustainability. (1) The appeal is that such a tax, if it is implemented before avoidance is possible, and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair).

There have been illustrious supporters, including Pigou, Ricardo, Schumpeter, and, until he changed his mind, Keynes. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away (these, in turn, are a particular form of wealth tax on bondholders that also falls on non-residents).

It should probably be obvious that there is one key sentence here, one which explains why the IMF is seriously considering the capital levy (supertax) option, even if it’s presented as hypothetical:

The appeal is that such a tax, if it is implemented before avoidance is possible, and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair).

It all hangs on the IMF’s notion – or hope – that it can be implemented by stealth, before people have the chance to put their money somewhere else (and let’s assume they’re not thinking of digging in backyards, and leave tax havens alone for now). Also, that after the initial blow, people will accept the tax because they are confident it’s a one-time only thing. And finally, that a sense of justice will prevail among a population, a substantial part of whom will have little, if anything, left to tax.

Some thoughts
Will more countries introduce capital controls or asset confiscations in the next few years? Duh, of course. Debt levels are unmanageable, so they have to be lowered. And there are only three ways to do it: deflationary collapse that wipes out the debt through default, inflation that wipes out the debt by destroying the world’s major currencies, or stealing enough private sector wealth to reset the clock. Option one – depression – is political poison so will be avoided at all costs. Option two is being tried and is failing because the deflationary effect of trillions of dollars of bad debt more or less equals the inflationary impact of trillions of dollars of new currency.

That just leaves door number three, demonize the successful and take what they’ve accumulated. Recall from the historical list that opened this post that governments like to pick on members of society who 1) have lots of money and 2) have lots of enemies or can easily be framed for crimes. This time around it will be “the rich” who are living well at the expense of the rest of us. The trick will be to define “rich” down far enough to make possible the confiscation of middle-class IRAs and 401(K)s, since that’s where the real money is.

Interesting that the build-up to asset confiscation is coinciding with a coordinated take-down of gold and silver, the two assets that will be hardest to steal when the time comes.

Think Your 401K Is Safe, Think Again

In hunt for revenue, Washington eyes 401(k) tax breaks

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By News Reports

February 27, 2013

Pressure is growing to change incentives for retirement savings as U.S. lawmakers look for revenue, and top earners may pay the price.

The budget challenges confronting the federal government are leading to scrutiny of tax-advantaged savings accounts such as 401(k)s because they’re among the costliest tax breaks. A Brookings Institution report released Tuesday adds to research that recommends curtailing the benefits for top earners to boost U.S. coffers.

“We really need to think hard about whether the dollars we are spending are effective at achieving the goals,” says Karen Dynan, co-director of the economic studies program at Washington-based Brookings and author of the report. “Our existing programs are falling short.”

The shift from pension plans, which typically guarantee income for life, to tax-deferred 401(k)s has put more responsibility on savers to ensure they don’t run out of money in retirement. As the accounts have grown — Americans held $3.5 trillion in 401(k)s as of September 2012 — they’ve become a target in deficit-reduction talks because contributions usually are invested and compound on a pretax basis.

The benefits reward higher earners who would save anyway while not providing enough incentive for low and middle-income earners, according to Dynan.

The American Society of Pension Professionals & Actuaries immediately issued a statement objecting to the Brookings report, which it said “would more accurately be described as double taxation” for those affected.

“You won’t expand coverage by penalizing small business owners for offering a 401(k) plan,” writes ASPPA executive director and CEO Brian H. Graff. “If this proposal went through, a small-business owner in the 39.6% bracket would pay an 11.6% tax on contributions made to the 401(k) plan today, and pay tax again at the full rate when they retire.”

The benefit for 401(k)-type plans is the U.S. government’s third-largest tax expenditure, behind only the mortgage interest deduction and exclusion of employer contributions for medical insurance. It is estimated to cost about $429 billion in forgone revenue from 2013 through 2017, according to the administration’s latest budget proposal. IRAs will cost about $100 billion over the five-year period.

Sen. Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor and Pensions Committee, plans to introduce legislation this year to require businesses that don’t offer a pension or 401(k) plan with a company match to automatically enroll workers in a so-called USA Retirement Fund.

About 68% of workers had access to retirement benefits as of March 2012, according to the Bureau of Labor Statistics.

“The dream of a secure retirement is getting fainter and fainter,” Harkin said Feb. 12 in a speech at the Center for American Progress in Washington, D.C. “Savings rates are low and there’s no simple way for people to convert their savings into a stream of retirement income they can’t outlive.”

- See more at: http://ebn.benefitnews.com/news/hunt-revenue-washington-eyes-401k-tax-breaks-2731134-1.html?gpt_units=/DCDB#sthash.7MF2GQcq.dpuf