FedUpUSA

Archive for June 25th, 2010

The government is looking at ways to promote the conversion of 401(k)s and IRAs into steady payment streams after a significant decline in plan balances

By Theo Francis

(Bloomberg) — The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged.

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 spearheading the effort.

Annuities generally guarantee income until the retiree’s death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.

“There’s a real desire on a lot of people’s parts to try to encourage something other than just rolling over a lump sum, to make sure this money will actually last a lifetime,” said Certner, legislative counsel for Washington-based AARP, the biggest U.S. advocacy group for retirees.

Promoting annuities may benefit companies that provide them through employers, including ING Groep NV (INGA:NA) and Prudential Financial Inc. (PRU), or sell them directly to individuals, such as American International Group Inc. (AIG), the insurer that has received $182.3 billion in government aid.

Balances Fall

The average 401(k) fund balance dropped 31 percent to $47,500 at the end of March 2009 from $69,200 at the end of 2007, according to a Fidelity Investments review of 11 million accounts it manages. The Standard & Poor’s 500 Index tumbled 46 percent in that period. The average balance of the Fidelity accounts recovered to $60,700 as of last Sept. 30 as the stock market rebounded.

There is “a tremendous amount of interest in the White House” in retirement-security initiatives, Borzi, who heads the Labor Department’s Employee Benefits Security Administration, said in an interview.

In addition to annuities, the inquiry will cover other approaches to guaranteeing income, including longevity insurance that would provide an income stream for retirees living beyond a certain age, she said.

“There’s been a fair amount of discussion in the literature taking the view that perhaps there ought to be more lifetime income,” Iwry, a senior adviser to Treasury Secretary Timothy Geithner, said in an interview.

Lump Sums

“The question is how to encourage it, and whether the government can and should be helpful in that regard,” Iwry said.

While traditional defined-benefit pensions were paid out as annuities, providing monthly payments for retirees and often their spouses, workers increasingly are taking advantage of options to receive lump-sum distributions.

Only 2 percent of 401(k) plan participants convert retirement savings into an annuity on retirement, according to a July 2009 report from the Retirement Security Project, a joint venture of Georgetown University’s Public Policy Institute and the Brookings Institution in Washington.

A survey of 149 companies released on Dec. 17 by employee-benefits consultant Watson Wyatt Worldwide, now part of Arlington, Va.-based Towers Watson & Co. (TW), suggested that about 22 percent of employers with retirement savings plans offered retirees the choice between an annuity and a lump-sum distribution.

Annuity Sellers

Government success in getting workers to move retirement assets into annuities may prove profitable for insurers that sell annuities, Anne Mathias, policy research director for Washington Research Group, a policy analysis unit of Concept Capital, said in an interview.

Retirement plans, including 401(k) accounts, held $3.6 trillion in assets at the end of the second quarter of 2009, while annuity investments of all kinds totaled about $2.3 trillion, according to figures from the Washington-based Investment Company Institute, a trade association for asset managers.

The top sellers of individual annuities in the U.S. include AIG, MetLife Inc. (MET), Hartford Financial Services Group Inc. (HIG), Lincoln National Corp. (LNC) and New York Life Insurance Co., according to figures from the American Council of Life Insurers for 2008. The top group-annuity sellers include ING, Prudential Financial, MetLife and Manulife Financial Corp.

Under Fire

Asset managers are concerned the government may go too far in encouraging annuities, said Mike McNamee, a spokesman for the Investment Company Institute. Seven in 10 U.S. households would object to a requirement that retirees convert part of their savings into annuities, according to a survey the group released today.

“Households’ views on policy changes revealed a preference to preserve retirement account features and flexibility,” the institute said in a report.

The institute also said annuities have received support from academic research and “it is unclear why individuals usually forego the annuity option” even when it is available. The survey didn’t ask about potential efforts by the government to encourage voluntary use of annuities.

Annuity sales to individuals have come under regulatory scrutiny in recent years over the size of sales commissions and whether some varieties are suitable for older investors.

Social Security

John Brennan, the former chairman of Vanguard Group, the Valley Forge, Pennsylvania-based mutual-fund company, criticized annuities today as often expensive and offering little inflation protection. Americans already benefit from “the best annuity in the world, which is Social Security,” Brennan said in an interview on Bloomberg Television.

AARP’s Certner said policy makers could avoid many of those pitfalls by encouraging the use of group annuities, which are bought by employers rather than individuals and often carry lower fees, or using approaches that provide retirement income without commercial annuities.

Adding lifetime income to 401(k) plans won’t be sufficient for many workers because they can’t, or don’t, save enough to live on in old age, and Social Security often proves inadequate as more than a safety net, said Karen Ferguson, director of the Pension Rights Center in Washington, D.C.

Senate Bill

“It’s a great idea, but how much are people really going to get out of it?” she said. A better approach would be to give employers incentives to revive defined-benefit pensions, which have languished as employers have focused on cheaper and more flexible 401(k) plans, Ferguson said.

One proposal raised by Iwry as co-author of a paper while at the Retirement Security Project, before joining the administration, has reached Congress. A bill requiring employers to report 401(k) savings both as an account balance and as a stream of income based on an annuity was introduced on Dec. 3 by Senators Jeff Bingaman, a New Mexico Democrat, Johnny Isakson, a Georgia Republican, and Herb Kohl, a Wisconsin Democrat.

To contact the reporter on this story: Theo Francis in Washington at tfrancis14@bloomberg.net.

By Peter Gorenstein

Convicted felons and former captains of industry Jeff Skilling and Conrad Black caught a break Thursday: The Supreme Court ruled to limit the reach of a federal fraud law that prosecutors used to convict both men. The decision doesn’t set them free but does send their case back to the lower courts and opens the possibility of retrial.

“This is the worst possible time for this case to come up,” says Damien Hoffman, co-founder of Wall Street Cheat Sheet. The conviction of Skilling, Black, Enron Chairman Ken Lay, and former WorldCom CEO Bernie Ebbers helped fuel the last bull market in the mid-2000s says Derek Hoffman, Damien’s brother and business partner. “When they were put behind bars there was a turn in investor sentiment.”

What we need to fuel another bull market, the Hoffman brothers contend, is a new round of perp walks and convictions for those responsible for the crash of 2008. “So long as investors think another Dick Fuld or Bernie Madoff is lurking on the next corner, gold, guns and canned soup will seem the safer bet,” they write in a recent article.

Here’s a few of the names the Hoffman Brothers think belong behind bars

- Joseph Cassano — the former head of AIG’s financial products unit. Under his watch the company amassed massive amounts of risk that lead to the biggest bailout in U.S. history. There’s very little chance of Cassano facing time, however; Federal prosecutors recently dropped their investigation against him.

- Dick Fuld — Lehman Brothers CEO who watched his house of cards come tumbling down, bringing the global financial system to the edge of the collapse.

- Angelo Mozilo — The Countrywide CEO helped fuel the subprime madness. His company’s lack of due diligence is a prime reason for the foreclosure problem. Mozilo also co-founded IndyMac, the large California bank that was seized by the FDIC in July 2008.

- Stanley O’Neal — the former Merrill Lynch CEO pushed the firm to aggressively market and trade CDOs. O’Neal left with the firm on the brink of collapse before Bank of America purchased it. For all his good work, O’Neal was fired but left with a golden parachute and options valued at $161.5 million at the time.

- Fabrice “Fabulous Fab” Tourre — the banker at the center of the SEC’s criminal fraud complaint against Goldman Sachs. “People need to know the Goldman’s of the world don’t have politicians in their pockets and that the American markets are a safe place to put your money,” says Damien.

The Hoffman Brothers also note that during the S&L scandal of the 1980s over 1,000 people went to jail. To date only two Bear Stearns hedge fund managers have even gone on trial. Both were acquitted. Meanwhile, Skilling is serving a 24-year sentence in Colorado. For now…

By Karl Denninger

Submitted by Tyler Durden

As we speculated previously, the sudden and unprecedented departure of Peter Orszag, the day prior to the US Budget’s formalization (which incidentally never happened as now the US will likely not have a 2010 budget at all, for fear of disclosing to most Americans just how broke the country is ahead of mid-terms) was due to Orszag’s disagreement with the administration’s, and particularly Larry Summer’s, inability to fathom that reckless spending is a recipe for bankruptcy. As the FT reports: “Peter Orszag, Barack Obama’s budget director, resigned this week partly in frustration over his lack of success in persuading the Obama administration to tackle the fiscal deficit more aggressively, according to sources inside and outside the White House.” And so, as any remaining voices of reason realize they are dealing with a group of deranged Keynesians, soon there will be nobody left in the administration who dares to oppose the destructive course upon which this country has so resolutely embarked, which ends in one of two ways: debt repudiation, or war. And with the only remaining economic “advisers” being the trio of Summers, Romer and Geithner, you know America will somehow hit both of these mutually exclusive targets.

More from FT:

Mr Orszag, whose publicly stated reasons for leaving were that he was exhausted after years in high pressure jobs and also that he wanted to plan for his wedding in September, is seen as the guardian of fiscal conservatism within the White House.

Other members of Mr Obama’s economic team, notably Lawrence Summers, the head of the National Economic Council, have placed more emphasis on the need for continued short-term spending increases to counteract what increasingly looks like an anaemic economic recovery in the US.

Although Mr Orszag agrees with the need to push short-term spending, particularly in the Senate, which again this week failed to pass a measure extending insurance to the unemployed, the budget director has become increasingly frustrated with the administration’s caution on longer-term fiscal restraint.

Mr Orszag, whom Mr Obama has dubbed a “propeller-head” because of his brilliant facility with projections and spreadsheets, has tried but failed to convince his colleagues to “step up the action”, according to one insider.

In particular, he has collided with the political team, led by Rahm Emanuel, Mr Obama’s chief of staff, over Mr Obama’s 2008 election pledge not to raise taxes on any households earning less than $250,000 a year – a category that covers more than 98 per cent of Americans.

Economists say that would put all the fiscal emphasis on draconian – and highly unrealistic – spending cuts, or else pushing the marginal tax rates on the very rich to confiscatory levels. “Peter feels strongly that this is a pledge that has to be broken if the President is to take a lead on America’s fiscal crisis,” says an administration official not authorised to speak on the matter.

And after Barney Franks’s disastrous appearance earlier on, where the market did a shot and an uptick for every lie uttered, we can safely say that this bankrupt country truly deserves all of its elected individuals.

ZeroHedge

By Karl Denninger

I want to talk to you about communism, but I have to tell you, that sounds like a joke. Three years ago I didn’t even think it was around; I would have mocked someone like me. But don’t fall into that trap. Open your mind and your ears — the country is in trouble.

The best thing to ever happen to communists was the red scare and Joseph McCarthy. We had beaten communism, soundly discrediting it in every sense. People viewed communists as traitors who wanted to destroy America. They crept back into unions — especially teachers’ unions — that coupled with colleges, you now had a situation where communists were starting to be the ones writing and teaching history.

Our children have grown up not knowing what communism is. They didn’t have to go through the emergency attack drills at school. They didn’t grow up hearing about the gulags. They haven’t seen the horror show of millions of mass murders and starving people at the hands of brutal communist dictators.

So now it’s cool to be a communist. T-shirts of Che Guevara are one of the most popular t-shirts around. Che was a racist and mass murderer, yet we have schools banning kids from wearing American flag T-shirts on Cinco de Mayo. If we’re going to ban shirts, how about the one with the communist killer on it? It’s not offensive because no one looks at the history of what they did.

FoxNews