Your 401k Plan May Not Be Yours Much Longer

“Why do you rob banks, Willy?” asked a reporter one day of bank robber Willy Sutton. The answer, to Willy, at least, was obvious:

“Cause that’s where the money is.”

Funny how naturally that line comes to mind when you think of the plans that House Education and Labor Committee Chairman George Miller (D-CA); and Rep. Jim McDermott (D-WA), Chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, have for your retirement savings plan and the plans you have set up for your employees.

Socializing 401k Plans: An Opportunity to Seize Control

It is remarkable that moments of crisis in America always seem to be invitations for power grabs as Americans, frightened by the current circumstances, hand over power and liberty to the government in return for promises of safety and security. Benjamin Franklin anticipated this when he wrote: "Those Who Sacrifice Liberty For Security Deserve Neither." Our 401ks are suffering, yet another victim of the global recession set off by forcing the financial sector to follow political and social rather than fiscal necessities. That kind of social experimentation always leads to trouble, yet the same party that proudly brought on the housing crisis wants to take over your retirement plan!

“The savings rate isn’t going up for the investment of $80 billion,” Miller said. “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.”

Miller has been thinking about it, and this is what he and his fellow democrats have come up with:

  • Eliminate the 401k tax breaks

  • Buy up 401ks at pre-crash values and pay a straight 3% interest on contributions

  • Make those contributions of 5% of net salary mandatory

  • Administer 401ks as part of the Social Security system

  • Pay-out 401k funds along with Social Security payments

In short, the plan is to take control of the most popular retirement tool in the nation, make it mandatory, determine how the money thus brought under government control should be invested and dole it out to retirees as the government sees fit.

These are the same folks who have been pilfering Social Security funds for decades, taking money for other needs and hoping that current workers paying into the fund will be able to keep it afloat. What makes you think that your retirement money would be safe? Social Security is yet another bubble and people have been predicting its demise for years. Perhaps this proposal, to socialize 401ks, is an effort to ease the pain of an impending Social Security meltdown, but I doubt it. Like all too many actions taken by the US Government of late, it is a chance to take control over more and more of the economy.

The Downside of Socializing 401ks

If they don't make it mandatory, that is, if they don't make this into another payroll deduction from the employee's check, then no one would do it. People would find other ways to squirrel away money for their golden years. The reason people make contributions to these plans is the fact that the employer matches their donation up to a certain point and that these plans offer tax incentives that make saving through these plans attractive. Get rid of these incentives and the only reason people will bother with 401ks any longer will be fact that they will become mandatory, an additional 5% tax on earnings over and above Social Security.

According to John Belluardo, president of Stewardship Financial Services Inc. in Tarrytown, New York. “A lot of people contribute to their 401(k)s because of the match of the employer. Higher-income employers provide matching funds to employee plans so that they can qualify for tax benefits for their own defined-contribution plans. If the tax deferral goes away, the employers have no reason to do the matches, which primarily help people in the lower income brackets.”

More to the point, it helps people in the lower income brackets save without relying on the government, which Christopher Van Slyke, a partner in Trovena, a La Jolla, California, advisory firm with $400 million under management, says is at the heart of the issue. “This is a battle between liberalism and conservatism,” he said. “People are afraid because their accounts are seeing some volatility, so Democrats will seize on the opportunity to attack a program where investors control their own destiny.”

The Bottom Line

To anyone with the least bit of investment savvy, the idea of making huge changes to a tried-and-true plan like the 401k because of the events of the last 90 days is ridiculous, so ridiculous that it cannot possibly be the reason. Still, the idea is on the table and if the Democrats take full control of Washington next year, then it is likely to become law and more trillions of dollars will come under direct government control.

They say that controlling the means of production is what makes a socialist state. If you control capital and can start and stop the flow of necessary funds, then you do control the means of production. The more sectors of the economy that come under government control, the closer we get, a sobering thought that makes one wonder: With Obama, Pelosi and Reid in charge, once the financial sector is under government control, what else we will have socialized?