Posted on October 27, 2008

Is Your 401(k) Plan a “Sitting Duck” for Money-Hungry Politicians?

Sitting Duck 401(k)

The recent financial crisis has politicians scrambling to come up with money to fund the various “bailouts” currently either in progress, or being proposed. Depending on who you ask, we’re talking about half a trillion, a trillion, or several trillion dollars. Where is that kind of money to be found?

One place where such sums currently repose is in the 401(k) plans of American workers. Around $3 trillion (that’s $3,000,000,000,000.00) are currently invested in such plans. Every penny is registered with the government, since the plans are required to make an annual report to the IRS. A great “resource” to tap into for poor, strapped Uncle Sam?

Blogger Arthur De Vany believes this is a definite possibility. He writes

It is not panic in markets that is driving events now. It is panic in Washington… Those 401Ks are just sitting ducks. Those tax-sheltered funds are a tempting, huge source of new government revenues. It is captive money that can’t really be moved. [R]etirees will be trapped when the government turns to them as a source of funds.

Preposterous? Unfortunately, no. Writing for U.S. News and World Report, James Pethokoukis has this to say:

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 (Efharisto, Fausta’s Blog). Now, even Uncle Sam isn’t that stupid, but some Democrats might try something almost as loopy: kill 401(k) plans.

House Democrats recently invited Teresa Ghilarducci, a professor at the New School of Social Research, to testify before a subcommittee on her idea to eliminate the preferential tax treatment of the popular retirement plans. In place of 401(k) plans, she would have workers transfer their dough into government-created “guaranteed retirement accounts” for every worker… 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.”

And‘s April Coggins weighs in with similar concerns:

As bizarre and unrealistic as it sounds, the Democrats are toying with the idea of seizing private 401(k) accounts to bail out Social Security. I don’t believe that the Democrats would be brazen enough to outright seize the accounts, but I do believe that they will incrementally punish people for not transfering retirement savings into government accounts.

AAFR has repeatedly warned about various Social Security “privatization” schemes that aim to drain funds (and with them, viability) from the Social Security system and place them in the hands of Wall Street, thus destroying Social Security’s traditional role as a government-guaranteed, defined-benefit system. Most of these threats to Social Security have come from Republicans.

But as the above quotes show, Democrats are hardly immune from the temptation to raid retirement accounts—only they, instead of gutting Social Security, are mulling dipping into private retirement funds.

We at AAFR are committed to preserving future retirees’ pensions, whether public or private, and shielding them from predators who masquerade as “reformers.” We’ll continue to blow the whistle on them—regardless of which side of the aisle they sit on.

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