Business Week is reporting an alarming development. The Obama administration is looking for ways to push investors into retirement annuities rather than other securities:
U.S. investors oppose federal initiatives that would force them to give up control over their 401(k) accounts, the Investment Company Institute said. Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing a steady payment for life, according to an institute-funded report today. . .
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. . .
Some lawmakers have questioned the public-policy value of the tax benefits for people investing in retirement accounts, the ICI said in a report today. . . Senator Herb Kohl, chairman of the Senate Special Committee on Aging, proposed legislation on Dec. 16 to require fund companies to do more to ensure 401(k) options are appropriate for workers. The Wisconsin Democrat cited reports that target- date funds designed for people retiring in 2010 invested in high-yield, high-risk corporate bonds.
If investors wanted annuities, we would have bought them. (Economists call this “revealed choice”.) Having the flexibility to do what we want is better than a fixed revenue stream. Plus, if we die before our retirement funds are fully spent (which is the plan), we want our family to inherit.
Anyway, who thinks that the administrations plan to boost annuities will consist just of public service announcements and the like? No, those guys simply don’t think that way. Whatever they do, it will be coercive. In their view, people must be forced to do (what they consider to be) the right thing. So we can look forward to some sort of penalty on 401k and IRAs that don’t invest enough in annuities.
That would be bad enough, but this guy thinks that qualifying annuities will be required to invest in treasuries. I’m afraid that sounds plausible, if not right away then a few years down the road. After all, the premise of this whole thing is that the private sector cannot be trusted. (And the government can? Sheesh.)
If the government requires you to “invest” in a government security, that’s no different than the confiscation of retirement savings that Argentina carried out a year ago. We already have a government annuity plan of dubious value called Social Security. Many don’t expect to see a single penny from it. We don’t want our real retirement savings, which we own, to be forced into a similar vehicle.
UPDATE: Here is more (from 2008):
Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.
House Education and Labor Committee Chairman George Miller, D-Calif., and Rep. Jim McDermott, D-Wash., chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.