In a post on November 8, I wrote of a possible move toward nationalizing 401(k)s and other private retirement funds -- that is, the goal now under discussion of transferring private funds into government hands to be administered and 'guaranteed' by the Social Security Administration. My speculation came from the massive changes to such private funds which are being actively considered by Democrats right now. At bare minimum, you should be prepared for more government 'involvement' in your retirement funds and a restructuring of the incentives or penalties attached to them.

A reader emailed last night to let me know that Neil Boortz mentioned the possible nationalization of private retirement accounts on his program today (Nov. 10). The reader commented, So let's get this straight. Al Gore pledged to put the Social Security funds in a "Lockbox".There was and is nothing in the fund other than a big pile of I.O.U.s because Congress spent the money, so Al was going to keep these slips under lock and key for us. We tail-end and post-baby boomers have been told to "get used to the idea" that there will be no Social Security for us to collect. Therefore, those of us who didn't over mortgage our houses, who didn't buy giant SUVs, and who have struggled to live without a new flat screen tv...boomers who have religiously saved money in our IRAs against the day when we are old and paid the tax on the money when it went in.... Now the Democrats realize "Hey! There's a huge pile of money out there tied up in these things we can't spend! Let's confiscate it!" This confiscation follows the confiscation they do out of every paycheck (witholding) which they do because they know the public would never stand for actually writing checks in these amounts....

That's a fair assessment of the de facto nationalization, should it go through. I honestly don't know how likely it is to do so. I say de facto because the government's move to control your retirement fund will not come as an open grab but in the guise of a generous gift -- that of security. This gift has been publicly discussed early October. On October 7, a headline in the Investment News declared "Congress mulls major 401(k) changes." The article opened,



Does it give anyone else pause that a man who believes a "tax break" is an actual investment by government is discussing how to manage "changes in the market"? Money they haven't taken from you is money they've spent? This is Mad Hatter economics.

Again, the back story: Faced with the declining value of private retirement accounts and the fear so elicited, Democrats in the U.S. House have been conducting hearings on the problems of private retirement accounts and considering solutions such as the possibility of converting them to accounts managed by the Social Security Administration. The Investment News reported on one suggested method of doing so. Congress should let workers trade their 401(k) assets for guaranteed retirement accounts made up of government bonds, suggested Teresa Ghilarducci, an economics professor at The New School for Social Research in New York. When workers collected Social Security, the guaranteed retirement account would pay an inflation-adjusted annuity under her plan. [Emphasis added]

The most important word in the preceding passage is let. If the transfer of privately-held wealth into government-held guarantees were to be entirely voluntary, then a key objection is bypassed. I would still will stand in one place, screaming, "DON'T DO IT! DON'T BE A FOOL!"...but people have a right to be fools with their own money. As long as government does not prevent the private management of retirement wealth and does not punish those who do so, then there is hope that people can retire without being dependent on government and its monetary policies.

I expect the first step toward nationalizing retirement funds is not going to be as dramatic as an outright grab which would, after all, run the risk of outright rebellion by those with private accounts. It would be more subtle and gradual. Boortz suggests a model that government might use to start the process. .



Some change is coming. Political fingers itch to get hold of your increasingly scarce money; that's the obvious motivation. But the ideological motivation is what is called "social justice" -- the redistribution of the wealth. Some of the voices driving the restructuring of private retirement accounts are quite candid about this goal. Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, has been a prominent advocate of the quasi-nationalization scheme and her testimony before Miller's committee has drawn great attention...tho' not from the mainstream media, of course.

According to Boortz, in October of this year Ghilarducci explained to a radio station that "I'm just rearranging the tax breaks that are available now for 401(k)s and spreading — spreading the wealth." Ghilarducci claims that the current retirement system "'exacerbates income and wealth inequalities' because tax breaks for voluntary retirement accounts are 'skewed to the wealthy because it is easier for them to save, and because they receive bigger tax breaks when they do.'" In short, the new system would be mandated equality. (For more on Ghilarducci's proposal, see her paper "Guaranteed Retirement Accounts" (GRAs) on the Shared Prosperity site.)

NOTE: another disturbing aspect of any scheme to transfer retirement wealth from private hands to government for administration by the Social Security system is that 401(k)s and the like are fully inheritable -- that is, they can be passed on to heirs in full -- whereas social security is not inheritable at all. Ghilarducci takes this 'problem' into account and suggests that workers be able to bequeath a portion of their GRA balance to heirs. That is, a worker who dies after retirement could bequeath their own contribution + interest but minus the employer's contribution and any benefits received. The paperwork alone would create a bureaucratic nightmare and many, many more government jobs to slurp at the all-you-can tax-money buffet.

I don't know if the Dems can successfully continue the nationalization of the financial sector that got off to a ripping start under the Reps. I know they will try. And they won't want to be outdone by the Reps with their $700B bailouts; they will want to be bigger and better. Thus, the Dem's proposal will be a brave one, a pioneering move, a decisive step...all those words you hate to hear from government. I suspect the overhaul of 401(k)s et. al. will not be as radical as the scheme proposed by Ghilarducci -- who was, after all, only one voice at the hearings held on this matter -- but the proposal will head in Ghilarducci's general direction. And whatever step is taken will be a first step at the cusp of 4 whole years of Democratic dominance.


On the Liberty Maven site, Marc Gallagher considers the question "Will an IRA confiscation plan [even a proposed one] cause a run on distributions?"