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The government may want to use your 401(k) to fund short-term debt

by Bob Morris, published

The federal government certainly is thinking about getting a piece of the retirement savings pie and is floating plans to have 'voluntary' Guaranteed Retirement Accounts (GRA), whereby the feds would take private retirement money and give annuities in return, which they say are guaranteed to give a steady return regardless of what the stock market does forever, including inflation.

The annuities would be issued by insurance companies and guaranteed by the government. What could go wrong with that? Oh wait... Fannie Mae and Freddie Mac were similar, weren't they? They were guaranteed to be about the safest investment ever, except when they went belly up with spectacular losses. Besides, no one can guarantee a risk-free return into the future. It's just not possible.

This sounds like a plan to use retirement money from the public to pay off, among other things, short-term debt owed to the banks who continue to demand they be paid back at 100 cents on the dollar for making loans and issuing bonds they knew had little chance of being repaid. Ireland, France, and Hungary have done or are about to do precisely that. In fact, part of the Irish bailout, which uses public money to pay back private debt, was funded by their public pensions. Do you think those pensioners will get a fair return on this? I doubt it. Plus they weren't even asked or consulted. The government just took the money. Could it happen here too?

Feds eyeing private money to finance deficit? "Fiscal policy appears headed toward policy like Argentina's." This is from the hard right World Net Daily, but as we will see, the threat is well-documented by the government's own words. By the way, why is it primarily just right-wing sites that are appalled by this? Where is the leftie outrage and suspicion?

Soon to be Speaker of the House Boehner opposes a proposal by Vice President Biden to enact government-sponsored GRAs (guaranteed retirement accounts) and related congressional testimony supporting elimination of tax deferral for 401(k)s, to be replaced with tax deferrals for GRAs.

House Republicans to Obama Administration: Keep Bureaucrats’ Hands off Americans’ 401(k)s 

Annual Report of the White House Task Force on the Middle Class, signed by Joe Biden:

Some have suggested 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. These accounts would allow workers to be sure that the funds invested in them will grow steadily without the risk of a market collapse.

Senate Special Committee on Aging:

Statement of J. Mark Iwry, Senior Advisor to the Secretary of the Treasury and Deputy Assistant Secretary for Retirement and Health Policy, US Department of Treasury:

Building on the success of automatic enrollment in workplace payroll-based savings vehicles such as 401(k) plans, the President’s FY2011 Budget would provide for automatic IRAs for those not covered by employer-sponsored retirement plans.  The President’s FY2011 Budget would provide for automatic IRAs for those not covered by employer-sponsored retirement plans.

Automatic sounds like mandatory to me. Plus employers who do not otherwise have retirement plans for employees would be required to put in 3% of employee income. This is a hidden tax.

Summary of Automatic IRA Act of 2010:

Amount. Employers will contribute a default percentage of an employee’s paycheck into the employee’s Auto IRA account. The bill sets the default at 3% (or such other percentage prescribed in regulations). Employees can raise or lower their contribution percentage, or can optout entirely from the program.

But, it appears the employer has to match 3% regardless of employee contribution. It defaults to a R-bond, which may be the supposed "can’t-lose" annuity the government is proposing to give after taking retirement money.

I find all of this disturbing. It appears to be a stealth attempt - or at least a trial balloon - to try to use private retirement funds (which should be sacrosant) to fund short-term US debt.

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