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What are the chances that the government will actually seize our 401(k) and IRA investments and manage them with Social Security in Government Bonds?

Is it prudent to wait and see before investing in my IRA next year?

Thanks.

I don't want Government touching my money.
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Somewhere between 0% and 100% given an infinite time line. By next year? I'd say less than 1%, probably less than 0.01% given that the government couldn't get things done that fast should they want to.

The government seizing control of private assets would be the last thing they would do. I can envision it only if the country is on the brink of complete collapse, and if that were to happen, there wouldn't be much left to seize anyways.

If you really don't want the government touching your money, you'll need to have hard assets, in your possession. I have some silver coins I'd be willing to sell you in that case.

WRJ
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Zero.

Unless you count inflating and devalueing the currency.

Greg
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My guess is 10% over the next 4 years.

Congress had a meeting to hear a proposal by some (idiotic) financial person and who proposed the government seizing 401ks, contributing $600/year (inflation indexed) into each person's retirement account and requiring a 5% contribution per year from each person. The government would then provide a 3% real(?) return each year on the account.

That is my very limited understanding of the proposal and what it was supposed to do.
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Unless every politician decided unanimously to not run for reelection, zero.

Fuskie
Who really pays no attention to these hysterical proposals and is reminded that in America, fools are free to say and propose the stupidest things and the price we pay is that we have to let them...
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What you may be thinking of is Rep George Miller's (D-Calif) proposal (and it is only a proposal) to effectively repeal paragraph K of section 401 and replace it with a tax credit for each dollar saved in a Govt sponsored retirement plan, up to $600, with a minimum guaranteed rate of return, and so on and so on.

Miller has been on a kind of one man crusade against the excessive and sometimes abusive costs, charges and fees that 401(k) TPA's have managed to skim off of 401(k) plans. Earlier this year he proposed legislation requiring that all 401(k) and investment costs (he listed about 15 or so of them) be listed out and provided to each plan participant. However, the resistance from the insurance, mutual fund and other interested industries and trade groups was going to make this a hard if not impossible fight. So his alternative strategy is presumably to simply replace 401(k)'s with something like the Feds Thrift Savings Plan, to which 3rd party TPAs play no part.

On the surface, this sounds like it could be good for the employee trying to save for retirement.

But from a statement he released a few days ago, Miller said...

"... 401(k) plans and IRAs collectively had lost $2 trillion from equities alone in the year ended Oct. 9, and defined benefit plans had lost $1.9 trillion, according to new paper by Alicia Munnell, director of the Center for Retirement Research at Boston College. "Maybe we are at a time where fiddling at the margins is not going to serve the American people," he said."

Now this kind of talk is scary. Where does Miller suggest the saved dollars be invested? Had these funds been in the Fed's TSP, would the losses have been any less? Unless, presumably, this plan guarantees a minimum rate of return - compliments of the tax payer. If so, then wouldn't all savers take the greatest risk investment...or will the allocations also be presecribed?

And for an employee at the 25% Fed marginal tax rate, this max $600 credit equals the equivalent of a $2,400 annual 401(k) contribution. So any additional contributions would have to be after tax. So if this is how it would be set up, for those saving more than $2,400 into their employer sponsored savings plan, this would effectively be a tax increase.

BruceM
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The government is about as likely to seize 401(k) funds as it us likely to eliminate the income tax or social security.

That said, keep in mind there are people who claim Obama is a socialist because he believes in the wealth transfer via a graduated tax system. My point is not to stir an political pots, but rather point out in areas like this, people use/select words to advance their political purposes.

The government needs the funds from the income tax, so they can keep that tax or change to another. The next tax system would have a new name to make is sound better.

Unless the people running the government have a desire to be beaten and killed, they will not eliminate the social security system. You most likely do not remember (but may have read), during the 1930's people marched on Washington and the government to get action. FDR called out the military -- not for parade, but to keep order. In my view the general tolerance for violence today is greater and the level of acceptance by the public is lower.

Gordon
Atlanta
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But now wait a minute. Isn't it Argentina that just nationalized private pensions? There is a precedent out there for nationalizing 401K plans. Some people must be asking if it makes sense in our situation.

The pluses--

1. Professional management, no need to worry about the return you will get on your retirement funds.

2. No more problems with 401Ks going bust, with individuals sucked into bad investments by clever advisors some of whom are sharks, or with a series of horror stories amounting to individuals being robbed of their retirement money or not being able to retire after a lifetime of employment.

The minuses--

1. How do you keep Congress from squandering the money, spending it for other things, and then not being able to come up with the funds they promised. I.e., this sounds like yet another Social Security plan. Nice promises, but irresponsible laws make it mostly sales pitch and not much substance.

2. Comprehensive national retirement program sounds nice, but it may very well bankrupt the government.
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Congress had a meeting to hear a proposal by some (idiotic) financial person and who proposed the government seizing 401ks, contributing $600/year (inflation indexed) into each person's retirement account and requiring a 5% contribution per year from each person. The government would then provide a 3% real(?) return each year on the account.

I read about that proposal, too. The proposal was that the required 5% contribution could only be invested in "special government bonds" - the same stuff that the Social Security Trust Fund is invested in. Since the "contribution" would be mandatory (i.e mandatory contribution = tax), it would in effect be a disguised raising of the FICA tax. The other part of the proposal was eliminating the reduction in taxable income, to be partially offset by a $600 tax credit. This would not necessarily go into your account. I figured that if you were maxing your 401(k) and were in the 25% tax bracket, it would result in an additional $3800 (roughly) in income taxes.

It is an absolutely horrible proposal. I love the part about a "mandatory contribution" - like my income taxes are "contributions" also!

foolazis
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So his alternative strategy is presumably to simply replace 401(k)'s with something like the Feds Thrift Savings Plan, to which 3rd party TPAs play no part.

It was my understanding that the TSP is administered by Barclays, and that the funds all have expense ratios, though quite low. I don't believe that anyone in the government would actually know how to run a mutual fund or funds, so there is still a third party involved.

foolazis
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The pluses--

1. Professional management, no need to worry about the return you will get on your retirement funds.

So basically a switch from a defined contribution to a defined benefit pension. Look how those are doing and what they are doing to the companies and municipalities that have them.


2. No more problems with 401Ks going bust, with individuals sucked into bad investments by clever advisors some of whom are sharks, or with a series of horror stories amounting to individuals being robbed of their retirement money or not being able to retire after a lifetime of employment.

I do agree that people need to be better educated about fund choices, fees and the risks of non-equity investments (annuities), but that's not a reason for nationalizing private property.


The minuses--

1. How do you keep Congress from squandering the money, spending it for other things, and then not being able to come up with the funds they promised. I.e., this sounds like yet another Social Security plan. Nice promises, but irresponsible laws make it mostly sales pitch and not much substance.


Social security is essentially both a defined contribution / benefit plan. Again, look at the projections for the future.


2. Comprehensive national retirement program sounds nice, but it may very well bankrupt the government.
Much like pensions are going to for cities and states, and social security will to the feds. Granted, governments can always raise taxes to pay for the system or print more money, but they will end up ruining the economy in the process, so the fact that they "paid" the benefit is moot.

Paul, I know you are just bring up points so don't take this as a personal attack.
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Congress had a meeting to hear a proposal by some (idiotic) financial person and who proposed the government seizing 401ks, contributing $600/year (inflation indexed) into each person's retirement account and requiring a 5% contribution per year from each person. The government would then provide a 3% real(?) return each year on the account.

That is my very limited understanding of the proposal and what it was supposed to do.


I read an article about the proposal in WSJ and then followed the link it had to the original article the person wrote.

My understanding of it is limited as well, but I don't think seizing existing 401ks was part of it. They wanted to limit the amount you could pass on, which I saw variously expressed as only being able to pass on half of what was left when you died or passing on your contributions but not matching. Presumably the government gets what you can't pass on, so I guess in a sense that's "seizing" but since you'd be dead it wouldn't bother you that much.

Going forward, they wanted to eliminate the tax-deductible aspect of 401ks.

Personally I'd rather they left 401ks alone. But a problem has been created by companies replacing defined-benefit plans with defined-contribution plans. 401ks were intended to be a supplement, not the whole retirement plan. IIRC West Virginia had switched their teachers to a defined-contribution plan years ago and wound up offering a buyout after something like 20 years because the defined-contribution plan wasn't going to come anywhere near what teachers would have had if they had kept the original pension plan.

The reason people are coming up with plans like this is that people in the lower brackets aren't contributing to 401ks. Case in point, a dear friend of mine in an office administrator position. Her company had an amazing matching program and she never put in any money. So for the 15-20 years she worked there she threw away 6 percent of her salary (the max they would have put in). I talked to her about it several times over the years. She's bright, a published author although not well-educated, but the 401k just isn't in her field of vision for some reason. She's tried investing in real estate but I don't think it's worked out that well for her. But everyone I know who has a college degree and is in a management or technical position is contributing as much as they can to their 401k.

For a few years now, people have been tinkering with ways to get more 401k participation. Nothing seems to have helped. It shouldn't surprise anyone that if companies are eliminating pensions and individuals aren't picking up the slack, the government is going to try and do something. Nobody with any sense like the prospect of a lot of old people out on the street in a few years.

Guby
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TwoCybers: "Unless the people running the government have a desire to be beaten and killed, they will not eliminate the social security system. You most likely do not remember (but may have read), during the 1930's people marched on Washington and the government to get action. FDR called out the military -- not for parade, but to keep order. In my view the general tolerance for violence today is greater and the level of acceptance by the public is lower."

See, e.g., Dan Rostenkowski, when his car was rocking and rolling.

Regards, JAFO
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For a few years now, people have been tinkering with ways to get more 401k participation. Nothing seems to have helped.

I think something that has been tried (and has worked) is the promotion of "opt out" plans instead of the current "opt in." As things are now, in most companies, you have to opt in to the 401(k). And, you're right, many people somehow just don't opt in -- even though it's in their interest to do so. The "opt out" approach has new employees immediately signed up for a 401(k). They have to take it upon themselves to opt out -- something they don't usually do. There're "nudged" in the right direction.

Some people call this "nudge paternalism" or "libertarian paternalism."

Here's a recent book: http://www.amazon.com/Nudge-Improving-Decisions-Health-Happi...

--SirTas
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For a few years now, people have been tinkering with ways to get more 401k participation. Nothing seems to have helped. It shouldn't surprise anyone that if companies are eliminating pensions and individuals aren't picking up the slack, the government is going to try and do something. Nobody with any sense like the prospect of a lot of old people out on the street in a few years.

The one proven effective method is to make it opt-out and to have everyone eligible immediately. Most people just go with the flow and don't bother to opt-out. They never miss what wasn't in their paycheck to start with. Only a few figure out that they could get more money to spend right away and change that.

Vickifool
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I think something that has been tried (and has worked) is the promotion of "opt out" plans instead of the current "opt in."

I should have read the entire thread. Here's a rec for beating me to it.

Vickifool
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"Paul, I know you are just bring up points so don't take this as a personal attack."

Gee, William. Where have we crossed horns before? I can't find any recent history. (Your CAPs account sure looks super.) Hopefully this does not sound too defensive.

It seems to me that the major problem being addressed is risk. Companies offered pensions when they were inexpensive, but now they have become a costly liability and they especially don't like the idea of major liabilities showing up on the books as "unfunded pensions" when stocks are down. (Too much risk.) They much prefer a defined contribution plan where they control how much they will spend each year on pension costs.

But every time the stock market crashes, many now find their ability to retire reduced. (Again too much risk.)

The trend has been to put more and more responsibility on govt. With govt managed 401K plans you have basis to demand a govt bailout if the markets tank. (Govt takes the risk off the shoulders of the individual.)

Similarly when employers abandoned their pension plans in bankruptcy some years ago, Congress was called on to set up the Pension Guarantee Corporation. Making govt responsible for pensions.

But I think we begin to see the practical limitations of all of this. The recent financial bailouts are close to the limits of what govt can fund. The economy is much bigger than govt. Govt cannot create infinite funds by taxation.

As Iceland seems to be finding out, our benefits, even if govt guaranteed very much depend on the health of the US economy. We have to be productive to pay for the standard of living we enjoy. We all depend on the success of the economy. Without that, not much else matters. The finer points amount to rearranging deck chairs on the Titanic.
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"You most likely do not remember (but may have read), during the 1930's people marched on Washington and the government to get action. FDR called out the military -- not for parade, but to keep order."

A minor point perhaps, but you have a few distortions of history there. The main marchers were the "Bonus Army." They were veterans of World War I who had been promised a "bonus" some time in the future and they marched for the payment now--during hard times when they needed the money. But Congress refused to pay the bonus (for fear that it would encourage other groups to make similar demands, essentially a series of extortion demands).

It was Herbert Hoover, not FDR, who ordered the bonus army evicted. Gen. Douglas MacArthur was the commander of the troups. He exceeded his authority they say and not only drove them out of town, but also burned their "Hooverville" shacks.

Some say this was the final straw that gave the 1932 election victory to FDR.
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What are the chances that the government will actually seize our 401(k) and IRA investments and manage them with Social Security in Government Bonds?

Is it prudent to wait and see before investing in my IRA next year?

Thanks.

I don't want Government touching my money.


AFAIK, the proposal was only about the 401k and IRAs would remain the same and still be safe. So if you are only doing an IRA, I think it is fine.

I'd do a search though to verify this if you are really concerned about it.
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