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Why the Government Wants to Hijack Your 401(k)

The Treasury Is Soliciting Your Feedback Regarding The Proposed Annuitization Of 401(k)

Submitted by Tyler Durden

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 in employer-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

Full notice

401k/IRA Screw Job Coming?

Posted by Karl Denninger

Now this is a guaranteed rape job.

In a short conversation this noontime that CNBC apparently has omitted from their archives (Why’s that folks?) Rick Santelli was talking about a potential to effectively force money into the Treasury market.

Where would they get this?

From your 401k and IRA accounts!

From Businessweek:

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.

Let me tell you what this is – it is an attempt to prevent the collapse of the Treasury market!

Forcing people into Treasuries as an “annuity” is exactly what Social Security allegedly is.  Except that Treasury stole the money that was collected in FICA taxes and spent it!

Guess what?  They’ll do that here too – you’re going to “invest” in Treasuries which of course are effectively a CALL option on the future taxing ability of the government.

The problem is that with an aging population and the immigrant problem (illegal immigrants that is), along with offshoring, the aggregate wage base will drop and thus this is the most dangerous investment of all!

What’s even worse is that the government has intentionally suppressed Treasury yields during this crisis (and will keep doing so by various means, including manipulating the CPI – the “inflation index” – as they have for the last 30 years) so as to guarantee that you lose over time compared to actual purchasing power.

THIS HAS BEEN THE CASE SINCE THE 1980s AND IT WILL NOT CHANGE!

I have been talking about this for quite some time and recall writing a Ticker on it a year or more ago, although I can’t find the entry immediately. 

Let me be clear:

I have no quarrel with the government mandating that you have a choice in your IRA or 401k account to buy short-duration Treasuries – much like the “G” fund that government and civil-service workers have.

But – “choices” have a funny way of turning into mandates, and this looks to me like a raw admission that Treasury knows it will not be able to sell its debt in the open market – so they will effectively tax you by forcing your “retirement” money to buy them!

This may be the only way for Treasury to hold down interest rates to something reasonable in the intermediate term, but doing so will instantaneously remove a major source of funding for the stock market – that is, the monthly and quarterly inflows from retirement accounts.

You can bet this won’t be good for you, the ordinary American.

You can also bet that once such an “option” is made available there is a very high probability of the government doing things that either promote or simply don’t stand in the way of another stock market crash as a means of “herding” your money into Treasuries – so they can blow it – all under the guise of being allegedly “safe”.

Of course this begs the question – what if the government can’t pay down the road when you retire, just as they can’t pay on a forward basis with Social Security and Medicare?

This “proposal” can only mean one thing – Treasury smells smoke.  Maybe you should pay attention to what they’re huffing!

And before you say “oh they’d never do that” I want you to read this:

Here is a warning to us all. The Argentine state is taking control of the country’s privately-managed pension funds in a drastic move to raise cash.

…

My fear is that governments in the US, Britain, and Europe will display similar reflexes. Indeed, they have already done so. The forced-feeding of banks with fresh capital – whether they want it or not – and the seizure of the Fannie/Freddie mortgage giants before they were in fact in trouble (in order to prevent a Chinese buying strike of US bonds and prevent a spike in US mortgage rates), shows that private property can be co-opted – or eliminated – with little due process if that is required to serve the collective welfare.

Any questions?

PS: If the video shows up I’ll update this ticker…. and if you’re wondering what hammered the dollar starting at about 9:00 today, this is probably it.  Such a “move” would free the government to further abuse the issuance of Treasuries rather than take necessary austerity steps and places us even further down the road toward a political and economic collapse.

Is the US Goverment Preparing the Lifeboats for the Next Financial Disaster?

Zero Hedge has an interesting review of proposed rule changes by the SEC and the Obama Administration which you can read in its entirety here.

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7.

The primary concern seems to be the new ability of money market fund managers to freeze redemptions (withdrawals) of funds at their discretion.

“A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to ‘suspend redemptions to allow for the orderly liquidation of fund assets.’”

If you have the time, you should sit down and read through the entire essay at ZH, because it is fascinating. I understand that many will not because of the length and density of the piece, which is really not all that bad, and fairly well written as all of their pieces tend to be. I am not so adverse to some of the other changes in the MMFs such as the tightening of durations, but that is more a quibble.

One also has to wonder if and when the government will begin to more aggressively manage the access of private citizens to their 401K’s and IRA’s and other forms of savings. Or is it just sufficient to manage the things that one might hold in them. Hard to say.

Now that the government will be forcing Americans to buy private health insurance (and presumably use it to prevent certain trasmittable diseases for the public good as your private health insurer will have your records) where will they stop? What about life insurance, long term disability insurance, and retirement plans? How about psychological counseling and sensitivity training for social malcontents? “A gram is better than a damn.”

Here is the concluding paragraph from this essay and I wanted to highlight it here because otherwise it will be overlooked by many who should read and understand it. The conclusions that the author draws about WHY the changes are being made are more important perhaps than the changes themselves. Or at least to me, because I have very little money in any US money market fund, and even that is 100% short term Treasuries. The fraud and mispricing of risk in the US financial system has become pervasive and epidemic, such that a good stiff headwind could have taken it all down, and because of a lack of serious reform, still can. Rather than fixing potential causes of the next disaster, the Obama Administration seems content to block the escape routes and issue priority passes to the big Wall Street banks and a favored few.

“At this point it is without doubt that even the government understands that when things turn sour, and they will, the run on the bank will be unavoidable: their solution – prevent money from being dispensed, when that moment comes. The thing about crises, be they liquidity, solvency, or plain-vanilla, is that “price discovery” occurs all at once, and at the very same time. And all too often, investors “discover” they were lied to, as the emperor, in any fiat system, always has no clothes.

Just like in September 2008, when the banks were forced to look at each-others’ balance sheet and realize that there are no real assets on the left backing up the liabilities on the right, so the moment of enlightenment occurs are the most importune time: just ask Hank Paulson. Had he known his action of beefing up Goldman’s FICC trading axes would have resulted in the “Ice-Nine’ing” (to borrow a Mark Pittman term) of money markets, who knows- maybe Lehman would have still been alive. Perhaps risking the cash access of 20% of US households and 80% of companies was not worth the few extra zeroes in Goldman’s EPS. But we will never know.

What we will know, is that now i) the government is all too aware that the market has become one huge ponzi, and that all investment vehicles, even the safest ones, are subject to bank runs, and ii) that said bank runs, will occur. It is only a matter of time. And just as the president told everyone directly to buy the market on March 3, so the SEC, the Group of 30, and Barney Frank are telling us all, much less directly, to get the hell out of Dodge. Alternatively, the game of “last fool in”, holding the burning hot potato, can continue indefinitely, until such time as the marginal utility of each and every dollar printed by Ben Bernanke is zero.”
This Is the Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied – ZeroHedge

Stand your ground and wait. All is well. Someone has to take the big hit while the important people are transported to safety.

The only constraint on the Fed’s printing money is the acceptability (marginal value) of the Bond and the dollar, which is the bond of zero duration. And the people making the decisions about printing and distributing those dollars are more unworthy of holding such power than you might imagine, even in your lowest expectations.

And if, even now, you do not ‘get this’ then the next ten years could be particularly disappointing.

How the Financially Connected Prospered in a Decade where Wealth Evaporated for the Majority: S&P 500 Down 24 Percent for the Decade, Real Home Values down 3%, U.S. Dollar down 23%, and Unemployment back to 1980 Levels.

Posted by mybudget360

As we usher in the New Year the filthy rich are counting their blessings and must be very appreciative of the massive bailouts that protected their wealth.  The top one percent of this country control 42 percent of all financial wealth so it shouldn’t come as any surprise that most of the bailouts went to Wall Street and those that are tethered to it for income.  As the stock market continues to rally Americans collecting food stamps stands at the highest number ever at 37 million.  We also have 27 million Americans looking for work or are simply stringing a few hours together to keep some sort of paycheck coming in.  The vast majority of Americans are simply exhaling a sigh of relief that the 2000s are now a thing of the past.  Yet if something isn’t changed radically in our system we are bound to enter another financial shock in the near term.

First, the S&P 500 is down a stunning 24.1 percent since the start of the decade.  Yet Goldman Sachs managed to pull off almost an 80 percent gain during the same time:

So for the poor average American who simply dollar cost averaged into the stock market as every good corporatocracy banker would tell them, they would have fallen behind someone who simply dollar cost averaged into their mattress.  Yet if you happened to dump your money with the government sponsored and back stopped Goldman Sachs you would have done much better.  Ironically these bankers are the same people who created the financial instruments that sent our economy into a tailspin.

The average American is finally realizing that much of the corporate power in Washington is doing very little for them and doing more and more for Wall Street.  So the stock market over the decade brought negative returns to Americans.  How did the housing market do?

The median U.S. home price in November of 1999 came in at $137,600 and ended November 2009 at $172,600.  This 25 percent gain is wiped out once we factor in the Federal Reserve inflating away the U.S. Dollar.  Housing over the decade is actually down 3 percent.  This is where the largest store of the average American wealth is stashed and it went negative for the decade.  Yet somehow the ultra rich seemed to make out like bandits with all the bailouts even though are economy was still fizzling out from two mega bubbles.  There is a reason they call it a golden parachute.

Let us recap.  The stock market brought negative returns both nominally and in real terms for the decade and housing is actually down in real terms.  So how did Americans do over the decade in the employment front?

The unemployment rate is the highest it has been since the early 1980s.  If we look at the employment population ratio we will see that our economy is still trending to the downside.  Yet the corporatocracy is happy to feed the propaganda line that the average American is better off.  Really?  How so?  Once the bubble decade wealth imploded the typical American is now in a worse position.  The national debt also exploded during this decade.  So housing values cratered, the stock market is still massively down, and employment is still in shambles.  Yet we are to believe things are just fine.  People are now finally waking up to the reality that the current system is designed to rip them off and steal from them at every point in the road.

Take credit cards and bailouts for example.  Some credit card companies are hiking fees up on customers before new regulations hit this year.  These are the same companies that benefitted handsomely from the corporatocracy bailouts.  This money came from the average American yet they are sticking it to them each and every other way.  For example, last month I was stuck by a “savings withdrawal fee” from Chase.  I never saw this before.  So I called up the bank and asked them what this was.  It amounted to a $12 fee for each transaction.  As it turns out, the wonderful Federal Reserve through Regulation D yanks money out for people making more than 6 ACH transfers per month from savings accounts.  So if you wanted to move your money from say your toxic too big to fail bank to say a local community bank, make sure you don’t do more than 6 transfers for the month or you are going to be hit with a $12 fee for this.  Insane policies like this make me realize that something is going to give in this decade.

But over the decade our U.S. dollar must have gone up right?  Let us take a look:

The U.S. dollar is down 23.5 percent for the decade.  So if any of you actually left the country and spent abroad you would quickly realize how weak the dollar has gotten.  This has to do with the massive government spending over the decade.  Over the holiday Congress voted to up the debt ceiling since we are breaking through every imaginable barrier possible.  Take a look at this below chart:

We went from $5.7 trillion to over $12 trillion in Federal government public debt in 10 years.  And what did we really get?  We just went through countless data points and where are we better off?  The reality is the money is being dumped into the vortex of the banking and corporate interest that run this country.  It is amazing that even with unemployment claims the media is championing this as a good sign yet they don’t even bother to look at emergency unemployment claims that are flying off the chart!  That is, they are focusing once again on the wrong data.

So it is going to be a challenging decade for average Americans.  The economy flew off the cliff and instead of reforming the system things are back to normal and the corporatocracy keeps on stealing from the population.  The mega wealthy are doing fine and the gap between rich and poor is the largest it has been since the Great Depression.  Welcome to the new gilded age.  Our lost decade is now in the bag.  Are we up for another one?  Let us hope not.

Many Americans are not buying the recent stock market rally.  This is being reflected in multiple polls showing negative attitudes towards the economy and Wall Street.  Wall Street is so disconnected from the average American that they fail to see the 27 million unemployed and underemployed Americans that now have a harder time believing the gospel of financial engineering prosperity.  Americans have a reason to be dubious regarding the recovery because jobs are the main push for most Americans.  A recent study shows that over 70 percent of Americans derive their monthly income from an actual W-2 job.  In other words, working is the prime mover and source of their income.  Yet the financial elite have very little understanding of this concept.  Why?  42 percent of financial wealth is controlled by the top 1 percent.  We would need to go back to the Great Depression to see such lopsided data.

Many Americans are still struggling at the depths of this recession.  We have 37 million Americans on food stamps and many wait until midnight of the last day of the month so checks can clear to buy food at Wal-Mart.  Do you think these people are starring at the stock market?  The overall data is much worse:

Source:  William Domhoff

If we break the data down further we will find that 93 percent of all financial wealth is controlled by the top 10 percent of the country.  That is why these people are cheering their one cent share increase while layoffs keep on improving the bottom line.  But what bottom line are we talking about here?  The Wall Street crowd would like you to believe that all is now good that the stock market has rallied 60+ percent.  Of course they are happy because they control most of this wealth.  Yet the typical American still has negative views on the economy because they actually have to work to earn a living:

The above daily poll asks Americans about their view on the health of the economy.  Only 13 percent believe the economy is good or excellent.  Funny how that correlates with the top 10 percent who control 93 percent of wealth.  Many Americans were sold the illusion of the bubble.  They were sold on the idea that their homes were worth so much more than they really were.  And many used this phony wealth effect to go out and spend beyond their means.  They started spending as if they were part of this elite 10 percent crowd.  But once the tide rolled out, it was clear they were not.  And the horribly built bailouts demonstrate who is controlling our political system.  This was not the rule of a capitalist system but a corporate run government.

Just think about the bailouts and which companies were saved.  We ended up bailing out the worst performing and troubled companies thus keeping alive companies that should have completely failed.  Did we bail out Google?  Proctor and Gamble?  Of course not.  These companies actually produce something that people want.  Banks and especially the Wall Street kind merely keep that 42 percent happy by making sure their stock values stay high so they can keep on making money while the average Americans is sold up the river.

Yet many were brought into the easy money fold by going into massive amounts of debt.  And who has most of the debt?  That is right, the average American:

The bottom 90 percent have been saddled with 73 percent of all debt.  In other words much of their so-called wealth is connected to debt.  Debt is slavery for many especially with egregious credit card companies taking people out with absurd credit card tricks and scams.  Yet the corporate propaganda machine is strong and mighty.  Have you ever received an inheritance?  A large one?  Probably not because only 1.6% of all Americans receive an inheritance larger than $100,000.  If this is the case, why in the world do politicians worry so much about the tax impacts of this?  Because they want to keep the corporatocracy alive and well so their spawn can get a piece of their pie.  They give the illusion to average Americans that if you only work hard enough you too can join this elusive club of cronies.  The data shows otherwise.

But if we start looking at investment assets, the true wealth in the country, we start realizing why Wall Street is all giddy about the recent stock market government induced rally:

Of investment assets 90 percent of Americans own 12.2 percent.  The rest goes to the top 10 percent.  Welcome to the new serfdom.  The bailouts that went out to the filthy rich were more about protecting their tiny corner of the world than actually making the economy better.  That is why it is interesting to see companies fire people and Wall Street cheer for the increase in earnings per share.  Good for the few at the expense of the many.  Yet the propaganda out of Wall Street and our government is what is good for Wall Street is good for you.  Just like that 1.6% inheritance issue, the vast majority of Americans won’t deal with that and their primary concern is simply a job.  A job that has provided stagnant wages for a decade while the ultra wealth get richer and richer in a phony form of corporate socialism.

If you break down the data you realize that most Americans don’t have time to speculate in stock markets:

Only 34% of U.S. households make more than $65,000 per year.  What is that after taxes?  Let us use a state like California for example:

Now if we breakdown this data further you will realize that most of the money is consumed by cost of living necessities, not Wall Street speculation.  Just to show this example let us look at a family budget for someone in California making $100,000:

Notice after running the budget we are in the hole for $1,000?  That is because of many costs that typical families have.  We can debate the merits of where they are spending money but the point is this; are these people really making beaucoup money from the stock market?  They are putting away $12,000 a year into their 401k.  As we have now found out, 8 percent a year is never guaranteed in the stock market although the corporate powers would like you to believe that so they can have other suckers to unload stocks onto.

“Yet the median household income in the U.S. is $50,000 and not $100,000.  They have even less to invest.”

They are more concerned on working to have a paycheck to pay for necessities.  They are more concerned about paying their house off by the time they retire and hopefully, have a little bit of retirement funds coming in.  The sad fact is most Americans rely on Social Security when they retire.  All those ads of unlimited golf and daily trips to Tahiti are propaganda of how Wall Street lives and they want to sell you the sizzle, and clearly not the steak.  They live their lives paper pushing and sucking the life out of the productive part of our economy.  The average American should now realize this since this financial crisis was primarily caused by them.  They are now on a massive campaign to blame Americans for this.  This is hypocrisy to the next level.  Many Americans have paid for their mistake by losing their home through foreclosure.  We have 300,000 foreclosure filings a month.  Many have taken a hit to their overall stock portfolio (if they have one).  Yet the corporate cronies have protected their horrible economy crushing debts at the taxpayer expense.  Unlike you, many hold bonds on the companies and not common stock like many Americans.  Bondholders have been protected at all costs during this crisis.  Goldman Sachs through AIG received 100 cents on the dollar for their horrible bets.  The banks have unlimited back stops thanks to taxpayers.  This is how the top 1 percent rule the new feudal state.

Welcome to the 2010 serfdom.  Time to wake up and restructure the system.  Many people are starting to wake up to this massive scam.