Government's Plan for Your 401K and IRA

Here they come.

Zero Hedge has this post:

The Treasury Is Soliciting Your Feedback Regarding The Proposed Annuitization Of 401(k) (2/1/2010)

"Yes, slowly but surely it is happening. In a federal notice filed earlier, the DOL and Treasury are soliciting a response on what has been on many investors' mind, namely the process of converting 401(k)s into annuity-like products. To wit:

The Department of Labor and the Department of the Treasury (the "Agencies") are currently reviewing the rules under the Employee Retirement Income Security Act (ERISA) and the plan qualification rules under the Internal Revenue Code (Code)to determine whether, and, if so, how, the Agencies could or should enhance, by regulation or otherwise, the retirement security of participants inemployer-sponsored retirement plans and in individual retirement arrangements
(IRAs) by facilitating access to, and use of, lifetime income or other arrangements designed to provide a lifetime stream of income after retirement. The purpose of this request for information is to solicit views, suggestions and comments from plan participants, employers and other plan sponsors, plan service providers, and members of the financial community, as well as the general public, on this important issue.

"A cursory read of the document does not seem to ask about a flat out regulatory requirement for annuitization. We point your attention to item 13:

13. Should some form of lifetime income distribution option be required for defined contribution plans (in addition to money purchase pension plans)? If so,
should that option be the default distribution option, and should it apply to the entire account balance? To what extent would such a requirement encourage or discourage plan sponsorship?

"For readers who feel compelled to respond to this increasignly socialistic and ludicrous development, we suggest you voice your anger at the following address:

e-ORI@dol.gov. Include RIN 1210-AB33 in the subject line of the message"

This blog has reported on this issue since June last year, most recently in this post in January 2010. As I said in my previous posts on the matter, this idea has been put into words by non-governmental entities - Brooking Institution (Mark Iwry) and Heritage Foundation (David John).

After virtually running around on the Internet trying to locate the document that Zero Hedge is citing (Department of Labor has such a hostile site for people looking for information), I've finally found it. Here it is:

DEPARTMENT of LABOR Employee Benefits Security Administration What I'm wondering is this:

Is this a regulation that would require Congressional approval, or could it be signed into law by an executive order signed by the president?

If it is the latter, then we could wake up one day and find out that we would be required to liquidate at least portion of 401K/IRA and buy some special Treasury securities that we would have to keep for 10, 20, 30, 40 years.

Again, should you wish to protest (or support, I guess, if you are hard-core socialist), the email address is: e-ORI@dol.gov, and include RIN 1210-AB33 in the subject line.

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Government Is Ready to Raid Your 401K and IRA

Another chance for equality (i.e. making everybody poor) coming our way via the Obama government. They've been quietly at it since after the election in 2008, and now finally they are coming out and asking for public comment. That means it may become a bleak reality pretty soon.

What is it? Well, your government wants to stuff your 401K and IRA with what they call safe "annuities". Who would provide those "annuities"? Probably none other than the Treasury Department, in the form of special Treasury bonds. For your own good, so that your money is "secure".

Americans Oppose Proposals to Limit 401(k)s, ICI Says (Update1)
(Jeff Plungis, 1/8/2010 Bloomberg)

If you simply look at the title of this article, you wouldn't know what is really about. But here it is:

"Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing lifetime payments, according to an institute-funded report today. The Washington-based institute represents the mutual-fund industry. "

"Lawmakers have proposed changes, and the Obama administration will seek ways to promote conversion of 401(k) accounts after their average value fell in the past three years alongside a 46 percent drop in the Standard & Poor’s 500 Index."

"The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are leading the effort."

Mark Iwry is from Brookings Institute who has been quietly working on the Obama administration's scheme of stuffing 401K and IRA with special Treasury bonds, and of mandating a national IRA for all employers. This blog has reported on this effective government takeover (albeit partially) of 401K and IRA in here and here.

Do not, for a moment, believe this is about the financial security for Americans. This is just another scam to siphon off wealth from the public. Remember the Treasury Department is fast running out of buyers for the government debt, willing or not. Therefore the government is turning to the least tapped source of buyers who have least say in just about everything: American public.

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Short-Term Treasury Bills Lacking Interest Among Foreigners

if 13-week bill auction is any indication.

The U.S. Treasury Department will auction away the last big batch of Treasury bills and notes in the final week of this year. The total amount will probably exceed $200 billion (4-week bill amount yet to be announced), of which $118 billion will be Treasury notes of various durations.

I was making a mental note as I went through the recent auction results, and something felt disturbing (from Treasury Department's point of view, I suppose). So I checked the numbers. And here's the chart of 13-week bill auctions since October, plotting the Indirect Bidder (foreign buyers) Percentage and Bid to Cover Ratio.



13-week bill is a run-of-the-mill Treasury bill. The Treasury Department auctions this bill every single week along with 26-week bill and 4-week bill, to the tune of $30 billion in each auction. No one pays particular attention to the auction results of these short-duration bills. They are continuously rolled over to fund the operation of the federal government.

What I noticed was a rather steep, consecutive decline of the Indirect Bidder Percentage in 13-week bill auctions. Bid to Cover Ratio has also started to decline. Now, both Indirect Bidder Percentage and Bid to Cover Ratio sit below their respective 2-plus month support (dotted lines).

Foreign buyers of Treasuries have shifted to the shorter end, or so we have been told. They now seem to be also deserting the short maturity bills. Treasury Secretary Timmy Geithner has announced the Treasury's intention to increase the average maturity of all Treasuries from the current 49 months to 72 months. That means 7-year note, 10-year note, and 30-year bond issues will be significantly increased. The prices will be pressured. Will foreign buyers increase buying the longer-dated notes and bonds for better yields? Or, seeing that there may be no end in sight for the U.S. deficit spending, will they further decrease the long-term Treasuries holdings?

In the worst case, there will be few foreign buyers to be found for both short-term and long-term Treasuries. The vice chairman of the Chinese central bank has recently said, in no uncertain terms, that the world does not have money to continue to buy the U.S. debt.

Who is going to absorb the avalanche of long-term Treasuries, by the way? This immediately comes to my mind. I hope I'm wrong, but I have this sinking feeling that my hope is ill-founded.

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Here Comes Mandatory IRA

When Jim Cramer tries to sell you something, the game's usually over. Two days ago he tried to lay claim to the brilliant idea of IRA stuffed with special Treasury bonds "that will be safe" (in reality, far from it, but no matter). It is coming, whether you like it or not.

Breaking Down the Obama IRA (7/7/09 Smart Money)

"Tucked into President Obama’s financial regulatory reform legislation still being debated in Congress is a proposal to get more workers saving for retirement. The plan calls for employers to set up mandatory automatic-enrollment IRAs, retirement accounts that allow for tax-deductible contributions.

"If the measure passes, companies that don't currently offer a tax-deferred retirement-savings plan would funnel employee contributions into IRA accounts through direct payroll deposits. It would also represent the biggest increase in new retirement savers since the creation of the 401(k) in 1980.

"Companies that don't currently offer a retirement plan, employ 10 or more workers, and have been in business for at least two years would be required to enroll their employees in an IRA."

"John [David John, one of the plan's designers, the principal of The Retirement Security Project and a senior research fellow at the Heritage Foundation] says he hopes to have a draft of the legislation introduced to Congress within a month."

The legislation is being crafted for the White House by the Heritage Foundation (conservative think tank) and Brookings Institution (liberal think-tank, that's where Mr. J. Mark Iwry comes from, Obama official in charge at Treasury - see my older post).

I thought it's the Congress' job to craft a legislation.

Do you remember the talk, back in November last year, about confiscating 401K and IRA to create Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration?

If the mandatory IRAs to be created will be stuffed with the Treasury bonds, the government will effectively own the accounts.

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Jim Cramer Pushing For IRA Treasury Bond

as if it was his own idea. It is beyond amazing. All I can do is LOLRL (laughing out loud, really loud). Mr. Jim Cramer of CNBC Mad Money is simply pushing the administration's idea of forced IRA accounts stuffed with the specially-designed Treasury bond.

I was made aware of Mr. Cramer's latest antic via Market Ticker. I followed the link provided there, and voila, almost word for word with the administration's plan that's been floating around. This blog posted the detail of this attempt to grab more money by the administration, here.

Cramer: 30-Year, 5% Treasurys? (7/6/09 Mad Money)

"Cramer has a solution for average Americans looking to recoup investments losses after a tough two years in the market: Rebuild America Retirement Bonds."

"...he [Cramer] called for the Treasury Department to issue 30-year, 5% bonds as a way to help families who are desperate to recover their savings."

And here's the administration officials:

"Officials in the Obama administration are moving quickly to develop the investment infrastructure behind the president’s proposal for mandatory automatic enrollment in individual retirement accounts, which could be supported by the creation of Treasury-issued retirement bonds."

"J. Mark Iwry, deputy assistant secretary for retirement and health policy at the Department of the Treasury, said that administration officials are exploring some “conservative” options for investing the assets of 78 million Americans that he estimates could be automatically enrolled in this “universal” workplace retirement system."

Back to Cramer:

"CD rates are just too low right now, and stocks have been too volatile to trust. As a result, typically cautious investors have few places to put their money."

Back to the administration officials [follow this link on my post]:

"And if their auto-IRA assets are invested in a vehicle that could decline in value or at least fluctuate frequently, these workers may be discouraged from continuing to save, and could choose to opt out of the plan.

"Using R bonds as the cornerstone for these accounts, however, could eliminate this volatility issue."

One original idea, Mr. Cramer.

Back to the administration official:

"The administration, which included an auto-IRA provision in its 2010 budget, has gained some bipartisan support for the proposal, Mr. Iwry added."

Back to Cramer:

"So call your congressman, call your senator and let the White House know you want these bonds to be issued."

78 million Americans who could "benefit" from such scheme, according to the article in my post. Multiply that by $100,000 each in the account, and you will get $7.8 TRILLION. Now the administration can spend, spend, spend on everything they ever dream of.

I urge you to contact your Congressman and your Senator to block this fraud.

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Mandatory IRA With Treasury-Issued R-Bonds?

Remember earlier this year when the stock market was still very volatile and the horrendous memory of September-November 2008 market crash was still fresh, there was a chatter about confiscating the IRA accounts and about creating a national IRA system where you are only allowed to invest in Treasury securities (at that time, 30-year bond was yielding 3%, currently 4.3%) ?

Well, that talk apparently isn't dead. I found this link in Lewrockwell.com blog section.

Administration explores 'R bond' as option for retirement accounts (6/7/09, Investmentnews.com) [emphasis is mine]

"Officials in the Obama administration are moving quickly to develop the investment infrastructure behind the president’s proposal for mandatory automatic enrollment in individual retirement accounts, which could be supported by the creation of Treasury-issued retirement bonds.

"J. Mark Iwry, deputy assistant secretary for retirement and health policy at the Department of the Treasury, said that administration officials are exploring some “conservative” options for investing the assets of 78 million Americans that he estimates could be automatically enrolled in this “universal” workplace retirement system."

"He said that officials have discussed the possibility of making a low-risk life-cycle or target date fund the default investment option for these auto-IRAs, which would be mandatory for employers if they don’t offer a retirement plan to their workers.

"... there is also a chance that they could rely on a new form of bond — an “R bond” — as the basic building block for the auto-IRA, Mr. Iwry said in addressing reporters at the Treasury Department in Washington last week.

"Administration officials are discussing the exact details of these R bonds, such as their interest rates, maturities and minimums, he noted. These bonds ideally would provide individuals with a source of secure, steady returns that would protect their initial investments."

"R" for "Retirement", I suppose. So, under this mandatory IRA program, workers get to have supposedly safe and non-volatile R-bonds issued by the Treasury Department until their investment grow to a certain size (whatever the size to be determined), then they will be allowed to "graduate" to the next level (whatever that will be).

What a scam. The U.S. workers get to have their IRA accounts stuffed with low-yielding Treasury debts so the government can spend more, and they have no other choice, at least initially (however long or short that's going to be). Coaxing foreign governments to continue to buy the US government debts (Treasury bills, notes, and bonds) is one thing; it's totally another to force its own citizens to buy the government debts.

78 million Americans with mandatory IRAs that have $10,000 in this R-bonds - that would be $780 billion U.S. debt taken care of right there.

"The administration, which included an auto-IRA provision in its 2010 budget, has gained some bipartisan support for the proposal, Mr. Iwry added. However, as more specific details of the program’s features come out — such as this initial investment infrastructure — opposition could well unfold. "

You must be kidding. Opposition? But Democrats have the majority in the House, and they can simply fast-track it, just like they may be planning to do with the health care reform bill.

By the way, Mr. J. Mark Iwry is from Brookings Institution who joined the Obama administration in April.

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