Does Government Want To Drain Americans' 401(k) Plan?
Posted 11/28/2012 06:39 PM ET
War On Wealth: As Washington debates what to do about the fiscal cliff that it foolishly created, many potential sources of new revenue will be thrown on the table. One of them is likely to be 401(k) plans.
Retirement is an American's reasonable expectation. We put money into investment plans so that our work today funds our hard-earned leisure of tomorrow.
But many in Washington see our investment accounts not as the expressions of well-planned, disciplined decisions but as untapped reservoirs of wealth they can drain to fix the problems that they caused.
The tax protection that 401(k)s have now can be wiped out by grasping politicians who refuse to do what's right, which is to severely cut spending.
The war on retirement, particularly 401(k)s, is quiet now. But that's because it's a cold war.
And like the postwar tensions between the East and West, it could erupt at any time into a hot war.
One group of retirement plan professionals is warning that the hostilities might be closer than many of us think. The American Society of Pension Professionals and Actuaries launched on Monday, according to Reuters, "a media campaign intended to educate U.S. employers and workers that the federal government might consider changing the tax benefits of retirement savings accounts."
A website set up by the ASPPA advises account holders to tell lawmakers to "keep their hands off your retirement savings" and explains that "Congress needs to reduce the deficit, and part of deficit reduction will most likely be 'tax reform' that increases tax revenue" — the strong suggestion being that Washington is coming after Americans' 401(k)s.
If the ASPPA were alone in issuing its warnings, it could be written off as the hyperbole of an isolated group. But Washington's lust for Americans' retirement investments is well documented.
President Obama's National Commission on Fiscal Responsibility and Reform, for instance, proposed lowering the cap on the amount workers could place in their 401(k)s without incurring taxes.
And nearly three years ago, Newt Gingrich and Peter Ferrara wrote on these pages about the Treasury and Labor departments "asking for public comment on 'the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams.'"
"In plain English," said Gingrich and Ferrara, "the idea is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years."
More than 60 million American workers have a 401(k) or similar — 403(b) or 457(b) — plan. But taxing these accounts or lowering the amount that can be contributed to them tax-free would do little to close the deficit and cut the debt.
Total assets in 401(k)s are roughly $3 trillion. So even if they were seized in their entirety, they would merely retire less than 19% of Washington's $16.3 trillion debt.
Taxed at 50%, 401(k)s would narrowly cover the $1.3 trillion deficit that Washington rang up in 2012.
Already a large chunk of America's retirement is held in the federal government's hands. Between 1937 and 2009, Social Security took in nearly $14 trillion in payroll tax revenue.
In all but 11 of those years, the government collected more than it spent on benefits.
Yet despite all the surpluses, the Social Security program is in financial trouble and Congress needs more revenue to fix it, just as it is looking for more of other people's money to avoid the fiscal cliff plunge.
Don't think for a minute that 401(k)s aren't on the table as a part of the solution.
And when they are served up in front of hungry politicians, they can be quickly devoured. All that will be left for the account holders will be a few crumbs.