For some time, there have been rumblings that the federal government might try to solve its budgetary problems by nationalizing (i.e., stealing) the money that millions of Americans have set aside for retirement in 401(k) plans and the like. One way they might do this is to confiscate the cash on hand in exchange for a promise to make future payments in the form of an “annuity.” An involuntary annuity, in that scenario.
I haven’t taken this speculation too seriously, mostly because the core of the Democratic Party consists of lawyers, and a lawyer’s most precious possession is his 401(k) account. One of those who have taken the threat more seriously is Congresswoman Michele Bachmann, who co-authored a letter warning the Obama administration against any attempt to confiscate Americans’ retirement savings. You can read the letter here. It says, in part:
In the Annual Report of the White House Task Force on the Middle Class, Vice President Biden discussed at length the creation of so-called “Guaranteed Retirement Accounts (GRAs)” which would provide protection from “inflation and market risk” and potentially “guarantee a specified real return above the rate of inflation” — presumably at taxpayer expense. …
The Vice President’s comments are troubling, insofar as they come on the heels of testimony before Congress from supporters of GRAs proposing to eliminate the favorable tax treatment currently afforded to 401(k) plans, and instead use those dollars to fund government-invested GRAs into which all employees would be required to contribute a portion of their salary — again, with a government subsidy. These advocates would, essentially, dismantle the present private-sector 401(k) system, replacing it instead with a government-run investment plan, the size and scope of which remain to be seen.
The letter goes on to discuss a “Request for Information” that has been issued by the Departments of Labor and Treasury on the “annuitization” of 401(k) plans:
Similarly, and more recently, the Departments of Labor and Treasury have jointly issued a “Request for Information” regarding the “annuitization” of 401(k) plans through “Lifetime Income Options.” …
[W]e urge that the Departments take no action to mandate that plan sponsors — often, small businesses — include a “lifetime income” or “annuitization” option if they choose to offer a 401(k) plan to their employees, or that beneficiaries take some or all of their retirement savings in such an option.
You can read the Labor and Treasury Departments’ Request for Information in the Federal Register. Its main theme is that the private-sector trend is toward defined contribution plans and away from defined benefit plans, and that, for some reason, plan beneficiaries don’t choose lifetime annuity products as often as some bureaucrats think they should. So the federal government is looking for ways to promote lifetime annuities.
There are, of course, benefits to such products. There are also drawbacks; most notably, they do not allow the saver to leave money to his children. If you die prematurely, you are just out of luck. In that respect as in others, lifetime annuities look a lot like Social Security. It is not clear why the federal government should be in the business of promoting one form of retirement product over another.
But, while the Request for Information definitely exhibits a paternalistic attitude, it doesn’t explicitly say anything about confiscating 401(k) accounts, or about the government taking on the role of annuity issuer.
At this point, I think the best we can say is this: the federal government is desperate for cash, and the biggest untapped source of wealth is the hundreds of billions or trillions of dollars that Americans who are now nearing retirement age have saved over their lifetimes. I don’t doubt for an instant that the Obama administration would like to get its hands on this money, which would go a long way toward resolving the current government debt crisis. An obvious way of doing so is to take the money now, in exchange for a promise to pay an “annuity” later. The bottom line is that, given what we know about the Obama administration’s rapacious appetite for swallowing up private wealth, anyone who has savings should be vigilant.