Imagine you have worked hard all of your life and did the right thing providing for your family and saving for retirement. Many people through out the world have been doing the right thing all along and now they are being cheated by the very systems that they supported. For many years people have contributed to various pension plans around the world; here in the US people are familiar with the IRA and 401K, which are most prevalent these days. In the past at least in the US many people went to work for a company and upon retirement they received a pension as the company took on the fiduciary responsibility to fund pensions. As time marched on due to many factors one of which was the cost to fund and administer pension plans companies opted to shift to a more “do it yourself” approach giving rise to the aforementioned IRA and 4101K. The various vehicles we have for retirement savings are to be used on top of the retirement entitlement born from the Great Depression known as Social Security.
For many years now there have been questions regarding the viability and sustainability of the Social Security system. I for one am not counting on the grand payouts from the social security system as I have doubts that it will even be available to me once I retire; either it will become in some way a victim to the current financial debacle or they will resort to “means testing” and God willing I would place outside of the limits set to be able to collect.
Around the world people are finding “monkey wrenches” thrown in to their retirement plans as rapacious governments look for revenue by turning over every couch cushion hunting for quarters, dimes and nickels. Don’t believe that a government could raid a pension? Well, dear reader, the concept of raiding the pension system to shore up a budget shortfall or provide for the common good is not a new concept; as recently as 2008 we learned that the leadership of Argentina took a $29 Billion bite from the pension apple to fund Presidente Cristina Kirshner’s vision of the government. Even as far back as 2001 the Argentine government had already swallowed up $3.2 billion in pensions setting the precedent for the even larger confiscation 7 years post.
On November 25th of this year Hungary made moves to bring $14.6 Billion of privately held pension assets under government control to attempt to reduce the government budget deficit and debt. Sure individuals could opt out and keep their pension private but they will lose their government pension and a significant portion of future pension contributions. The scheme is as one of the quotes in this linked article put it best; “This is open blackmail” and a” rigged deal”.
In one of the latest “bailout” deals the Irish are not happy with the terms of the situation, in fact there is a great quote calling it the longest ransom note in history. I don’t want to get in to the specifics of the deal but needless to say the Irish need to come up with $23 Billion of their own funds for the “rescue” and it is going to be in the form of both cash and pension reserves. The estimates are that the pensions will be raided for $10 – 12 Billion.
Now there are rumblings out of France who recently made headlines with riotous protest over raising the retirement age by 2 years; just imagine what might happen when the French people really get a handle on the fact that their government is raiding their pension funds to the tune of €36 Billion to pay for welfare debts. SO when they figure out that not only will they have to delay their retirement but also the payouts will be less because of needing to fund welfare programs, suffices to say I would not want to be a French politico at this juncture. After all the French have been know in the past to take their government to task all the while yelling “off with their heads”.
Are you noticing a pattern here dear reader? As governments are forced with their backs to the wall they will take what they want regardless of who owns it after all everything we have is only on loan from the government. You say that can’t be true but wait I will prove it to you; let’s say you are living the American Dream and have bought a house. You have been diligent and paid your mortgage for the past 30 years and have even had your “mortgage burning” party, something practically unheard of these days. You now own your little piece of America free and clear, and you run in to trouble and start missing your property tax payments due to a lost job or some such other unfortunate circumstance curtailing your income. A few months pass and you still have not made payments for property tax you figure no problem at least you still have a roof over your head; only you come to find out that after a period of time the town or city takes ownership of your property. In essence you may have bought and paid for the home but it is really only a long term lease for as long as you can afford it. Even money you have already paid tax on and worked for your entire life is not truly yours as upon your death it is taxed yet again before you can pass the remnants along to your heirs.
So why do I bring this whole pension raiding affair up in the first place? To start with I just want to point out that even “sacred cows” appear not to be so sacred any more. Moreover, there is now precedent after precedent of Governments that are cash strapped looking to methods of what amounts to essentially extortion to plug the holes in various dykes both for good and bad reasons. Once again the refrain from many amongst us is that is just those crazy South Americans and Europeans and something like that could never happen here, to which I say really?
Back in October of 2008 Teresa Ghilarducci proposed a solution to retirement funding problems for workers in a report entitled “Saving Retirement in the Face of America’s Credit Crises”. The basic jist of the report was to limit the deductibility of IRA and 401K contributions and offer and alternative $600 tax credit and a new type of account that offered an annual return guaranteed by the government. Ghilarducci later proposed to Congress yet another idea in the wake of the October 2008 stock market meltdown that “Congress allow workers to swap out their 401K assets, perhaps at August levels, for a Guaranteed Retirement Account. Just a onetime swap for a guaranteed retirement account of government bonds that pay 3% real return” Sounds pretty harmless doesn’t it? The problem is the way things operate in Washington this was what is known as a trial balloon. A trial balloon is where a new or radical idea is floated and even if it does not pass in to existence the first time it reappears over and over until it begins to be accepted. Usually only part of it is accepted and that opens the door for law makers to begin to tinker with it once they realize they can get their meat hooks into whatever it is. Notice the benign wording as people would be allowed to do participate in the guaranteed retirement.
Flash forward to May 2009 where Ms. Ghilarducci presents her Plan for Mandatory Universal Pension System all the while criticizing the Obama plan to push individuals to save 3% in 401K type plans with a government match. She then goes on to explain why 401K’s are flawed vehicles for retirement savings due to their commercial nature and investors inability invest properly as well as the fees associated with the plans. She proposes a universal mandated fund that is to be funded by both contributions from employees and employers of 5% of salary per pay period. A tax credit of $600 dollars indexed for inflation is proposed for all workers regardless of income as she puts it since there are those who make to little to be able to contribute, of course this begs the question of why give that credit to people who can afford it? The funds are then to be part of a quasi government agency that will be held accountable and hire professional money managers to guarantee retirement income on top of social security indexed to inflation for life. Still sounds benign, but notice dear reader the 2nd trial balloon moved from “allow” to “universally mandated”. Let us not forget that this is a woman who has the ear of congress and this particular topic appears to be her mission in life.
So I do not know where this potential pension mess is going dear reader but based upon the planted seeds and the situations happening with pension funds around the world it is a subject worth watching. Those of you who stand by and believe that things like that do not happen here are living in denial in my opinion. I do not have a crystal ball but it would not surprise me to see the Government view our IRA and 401K balances as potential panacea or at least a temporary remedy for what ails some part of the economy. Just as social security turned out not to be sacred and the funds were raided over time leaving us in a social security shortfall today, our retirement funds are not safe either. I could see the government trying to implement this type of an asset grab in a piece meal fashion first on a voluntary basis, but then as some crisis hit moving to make it mandatory to buy certain bonds or investments in our retirement accounts. The stage has been set between ideas proposed to Congress and the asset grabs in the name of public good around the world. I am reviewing ways in which to allow individuals to protect these assets form seizure but it is a tricky subject and I will let you know what I find out when I know more.