Thursday, November 29, 2012

Government Eyeing Private Retirement Plans

by Bryan Baumgart - 11/29/2012

The Plot

explained in a recent NY Times editorial, Teresa Ghilarducci, a professor of economics at the New School originally testified before the House Committee on Education & Labor in 2008.  Her plan explained below has begun picking up traction among lawmakers. Under Ghilarducci's plan, tax free contributions to private retirement accounts would be eliminated and money currently located in private 401(k)s would be seized by federal edict and used to establish government run pensions she refers to as Guarantee Retirement Accounts (GRA's). The funds would be placed with the terribly mismanaged Social Security Administration. You would then be required to surrender 5% of your pay into the GRA's until you retire. If you die before collecting the money, it goes to Washington rather than your heirs, even if you worked hard and did a fantastic job of saving and investing your hard earned money. Failure to comply would be punishable by fines and jail time. Ghilarducci's congressional testimony can be seen here.

The Problem

Many Americans have chosen or have not been able to contribute enough money to private retirement accounts. Couple that with unfunded public pensions, a failing social security fund, and devastating effects of the economic downturn on 401(k)s, and we are left with  a large number of Americans nearing retirement without any way to fund it.

Class Warfare

Liberals have derided the fact that only
half of Americans own and actively manage their 401(k)s. Of that 50%, very few are able to contribute the maximum 17% allowing them to take full advantage of the tax breaks. They claim private retirement accounts favor the wealthy and demand seizure of 401(k)s in the name of economic justice!

Why Now?

The government has found itself underwater and the leg cramps are beginning to set in. Realizing Washington is missing out on an
estimated $50 - $70 billion dollars worth of tax revenue each year; officials have introduced plans to end those tax credits, initially offered to encourage savings by individuals. (*Note: Many liberals will claim a higher estimate, intentionally assuming that all 401(k) money is invested in bonds when in reality, two thirds of 401(k) assets are invested in equities where gains are taxed only when realized and both dividends and gains are taxed at a preferential rate of at most 15 percent.)

Realizing that $50 - $70 billion dollars is only a drop in the bucket of our $1 trillion dollar + annual deficit, officials are considering extending their plot to include seizing private 401(k)s to purchase government bonds in order to cushion the government's spending problem.

The Cold Hard Truth
"The government is making a play to suck the last bit of capital from capitalism." - Rush Limbaugh
There is no arguing that America faces a looming crisis as the 401(k) generation nears a significantly underfunded retirement. The question is what should be done about it?  Does a government that promised tax free contributions have a right to renege on that promise?  Does a government that encouraged private savings have a right to turn around and seize the fruits of one's labor to help alleviate the problem they created?  Does anyone really believe that the government would do a better job looking out for your retirement than you would?  The government has already spent and bankrupted our saving in the social security trust fund?

Should reform start by addressing WHY American's have not been willing or able to contribute to their 401(k)s?

There is no question that reform is necessary! The question should that reform look?

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