401k News

The White House pulls a switcheroo on retirement savings accounts.!

How many times have you read financial-advice stories lecturing you to max-out on your IRA, save as much as you can in your 401(k) Well, be careful how much you save.!

That’s the message in President Obama’s budget for fiscal 2014, which for the first time proposes to cap the amount Americans can save in these tax-sheltered investment vehicles. The White House explanation is that some people have accumulated “substantially more than is needed to fund reasonable levels of retirement saving.” Thus do our political betters now feel free to define for everyone what is “needed” for a “reasonable” retirement.

Out in the private economy, people generally have to work longer than that before they retire, and some of them do manage to save significant amounts. We’re talking about people who work for decades and abstain from buying the bigger house or the new car so they can contribute the maximum to their 401(k)s or IRAs. The people who defer gratification and build a nest egg to avoid becoming a burden on their kids or their fellow taxpayers. The people whose savings finance productive enterprise. You know, the bad guys.!

Mr. Obama wants to treat them as if they all got rich by sheltering investments in the Cayman Islands or extracting bonuses from bailed-out banks or scooping up sweetheart mortgage deals from allegedly nonprofit universities.

So the IRS would get new power to impose new burdens on millions of taxpayers. And all so the government could raise what the White House claims would be $9 billion more in revenue over 10 years. Congress wanted to encourage people to save, especially as it understood that Social Security and Medicare will become increasingly unaffordable.!

The Administration’s political motive here is two-fold: First, it’s a redistributionist play and a revenue grab. But for many on the left it’s also about reducing the ability of individuals to make themselves independent of the state. Amazingly, Mr. Obama has surveyed the economic landscape and somehow decided that it’s time to discourage savings if you make more than he thinks is “reasonable.”!

The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, a move that would be the agency’s first foray into consumer investments.!

“That’s one of the things we’ve been exploring and are interested in in terms of whether and what authority we have,” bureau director Richard Cordray said in an interview. He didn’t provide additional details.

“I could imagine the CFPB growing into a role on investment savings if it seems like the SEC is asleep at the wheel,” Calabria said in an interview.

Will the baby boomers be the only generation to retire with 401(k) plans? It could happen.

Last week many of the nation’s biggest thinkers on retirement got together in a Senate hearing room to discuss the future of pensions and retirement. There were representatives of unions, employers, financial services providers, government agencies and consumer groups.

There are a lot of proposals and products floating around now that are designed to address these shortcomings and issues. Anyone under the age of 50 should watch that space; policy changes down the road could change the shape of their retirement savings significantly, and everything from a curtailing of 401(k) tax breaks to new state- run programs is under consideration somewhere, by somebody.

You always have options. The financial services world is large and competitive, and there’s no law that says you have to keep your money in your 401(k) forever.

While attending a terrific symposium recently on the retirement challenges women face, I came away with a stark realization: Washington has a bull’s-eye on every American’s 401(k).

Why would Congress and the president target retirement savings plans? Especially when they’re so highly valued by the American public?! The answer, to paraphrase bank robber Willie Sutton, is because that’s where the money is.

Trimming Retirement Plans to Shrink the Deficit! The tax breaks for 401(k) and similar retirement savings plans add up to $100 billion a year and will cost the government an estimated $429 billion from 2013 to 2017. That’s more than the mortgage interest deduction.

These plans are also tempting targets politically, because 80 percent of their benefits go to the top 20 percent of earners, according to the Tax Policy Center. That’s why liberal- leaning groups, like the Pension Rights Center, say the plans’ tax breaks should be trimmed.

Andrea Coombes, the retirement columnist for The Wall Street Journal’s Marketwatch site, recently wrote: “Some say it is inevitable that lawmakers will at least look at limiting the tax benefits of such plans.” Certain employers may stop offering 401(k)s if benefits are cut for higher-earning employees.

War On Wealth: As Washington debates what to do about the fiscal cliff that it foolishly created, many potential sources of new revenue will be thrown on the table. One of them is likely to be 401(k) plans.

Many in Washington see our investment accounts not as the expressions of well- planned, disciplined decisions but as untapped reservoirs of wealth they can drain to fix the problems that they caused.

The tax protection that 401(k)s have now can be wiped out by grasping politicians who refuse to do what’s right, which is to severely cut spending! The war on retirement, particularly 401(k)s, is quiet now. But that’s because it’s a cold war. A website set up by the ASPPA advises account holders to tell lawmakers to “keep their hands off your retirement savings” and explains that “Congress needs to reduce the deficit, and part of deficit reduction will most likely be ‘tax reform’ that increases tax revenue” — the strong suggestion being that Washington is coming after Americans’ 401(k)s.

President Obama’s National Commission on Fiscal Responsibility and Reform, for instance, proposed lowering the cap on the amount workers could place in their 401(k)s without incurring taxes. “In plain English,” said Gingrich and Ferrara, “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.”

Yet despite all the surpluses, the Social Security program is in financial trouble and Congress needs more revenue to fix it, just as it is looking for more of other people’s money to avoid the fiscal cliff plunge.

Don’t think for a minute that 401(k)s aren’t on the table as a part of the solution! And when they are served up in front of hungry politicians, they can be quickly devoured. All that will be left for the account holders will be a few crumbs.

I have noticed an uptick this year in the number of people who seem worried that government action of one sort or another might have a negative effect on their 401(k) plans.

Many people have also expressed concern that government meddling might somehow restrict participants’ control over their 401(k) balances.

Back in February, the administration released the first Annual Report of the White House Task Force on the Middle Class. Among other things, the report recommended further study of “the creation of Guaranteed Retirement Accounts (GRAs), which would give workers a simple way to invest a portion of their retirement savings in an account that was free of inflation and market risk, and in some versions under discussion, would guarantee a specified real return above the rate of inflation.”

That same month the Department of Labor and Treasury asked for public comments about making it easier for 401(k) participants to access annuities and other guaranteed income products.

The language in the DOL’s request seemed like the usual bureaucratic banal fare, noting mildly that DOL and Treasury wanted “to determine whether, and, if so, how, the Agencies could or should enhance, by regulation or otherwise, the retirement security of participants in employer-sponsored retirement plans and in individual retirement arrangements (IRAs) by facilitating access to, and use of, lifetime income or other arrangements designed to provide a lifetime stream of income after retirement.”

The issue is whether you should be concerned that government policy of various sorts might disadvantage your 401(k) and, if so, what you might do about it.

I think it’s perfectly reasonable to be concerned that a boost in tax rates might effectively shrink your 401(k). It’s not as if Congress has been historically shy about income tax hikes.

A future Congress desperate for funds could always come up with new tax schemes that subvert your planning. But it still makes sense to do what you can.

I hate to use the “S” word, but the American government would never do something as, well, socialist as seize private pension funds, right? This is exactly what cash-strapped Argentina just did in the name of protecting workers’ retirement accounts Now, even Uncle Sam isn’t that stupid, but some Democrats might try something almost as loopy: kill 401(k) plans.

In place of 401(k) plans, she would have workers transfer their dough into government- created “guaranteed retirement accounts” for every worker. The government would deposit $600 (inflation indexed) every year into the GRAs. Each worker would also have to save 5 percent of pay into the accounts, to which the government would pay a measly 3 percent return.

Rep. Jim McDermott, a Democrat from Washington and chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, said that since “the savings rate isn’t going up for the investment of $80 billion [in 401(k) tax breaks], we have to start to think about whether or not we want to continue to invest that $80 billion for a policy that’s not generating what we now say it should.”

Will Obama Really Confiscate Your Retirement Savings?

The budget proposal President recently submitted had several provisions designed to increase government tax revenue. But one provision concerning retirement accounts triggered alarm bells for many Americans, raising fears that the government will confiscate your retirement savings.

Immediately, many analysts jumped to the conclusion that the provision might involve actually taking away money from retirement accounts.

A recent hearing sponsored by the Treasury and Labor Departments marked the beginning of the Obama Administration’s effort to nationalize the nation’s pension system and to eliminate private retirement accounts including IRA’s and 401k plans, NSC is warning.

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.”

A representative of the liberal Pension Rights Center, Rebecca Davis, testified that the government needs to get involved because 401k plans and IRAs are unfair to poor people. She demanded the Obama administration set up a “government-sponsored program administered by the PBGC (the governments’ Pension Benefit Guarantee Corporation).” She proclaimed that even “private annuities are problematic.”

Such “reforms” would effectively end private retirement accounts in America, Crone warns. “These people want the government to require that ultimately all Americans buy these government annuities instead of saving or investing on their own. The Government could then take these trillions of dollars and redistribute it through this new national retirement system.”

Deputy Treasury Secretary J. Mark Iwry, who presided over the hearing, is a long-time critic of 401k plans because he believes they benefit the rich. He also appears to be one of the Administration’s point man on this issue.

Uncle Sam, in a desperate attempt to fix its $16 trillion-plus deficit, is leering over Americans’ retirement nest egg as its new bailout fund.

Capitol Hill politicians are assessing tax changes that could let the Internal Revenue Service lay claim to a portion of the $18 trillion sitting in 401(k) accounts and other tax breaks used by middle-class workers, including cutting the mortgage tax deduction.

A commission looking for ways to close the deficit, and, noting the extent of 401(k) tax breaks, recommends an examination of the system as one way to prevent government bankruptcy.

“Unlike the current system,” Gale told Congress, “workers’ and firms’ contributions to employer-based 401(k) accounts would no longer be excluded from income and would be subject to taxation, contributions to IRAs would no longer be tax-deductible and any contributions to a 401(k) plan would be treated as taxable income.”

In other words, the employee and employer would no longer get a deduction under the Gale plan, they would qualify for a credit. And the credit would “increase [government] revenues by about $458 billion,” Gale says.

Testifying before the House Ways and Means Committee about the proposals, Randolf Hardock, of ABC’s board of directors, said, “[The idea] could seriously undermine the retirement savings system.”

Jack VanDerhei, research director of Employee Benefit Research Institute (EBRI), believes either of the two proposed 401(k) changes under review would have a “catastrophic” effect on the current retirement saving system.

The $19.4 trillion sitting in personal retirement accounts like the 401K may be too tempting an apple for a government that is quite broke, both monetarily and morally. The U.S. Consumer Financial Protection Bureau director Richard Cordray recently mentioned these accounts in a recent interview, stating “That’s one of the things we’ve been exploring and are interested in, in terms of whether and what authority we have.”

Nationalizing the personal retirement accounts would allow our government to borrow even more from its largest debtor (U.S. citizens) without further devaluing the currency. While this may seem far-fetched, as international pressure mounts to maintain the value of the dollar, you will hear more about this.

If at some date we find ourselves at a tipping point in international relations, it may very well come down to nationalizing our 401K’s or going to war. Many Americans are choosing to take their penalties and withdraw their 401K funds while they still can.