Trader Dan Comments On The Nationalizing Of 401(k)s Posted: May 04 2010 By: Dan Norcini Post Edited: May 4, 2010 at 8:03 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
I have heard rumblings about this for more than a year but up until now, did not pay those rumors much attention as in this day and age, there are all manner of things floating around in cyberspace.
However, the fact that this is now drawing Congressional Republican interest plus a formal response, tells me that there might actually be some fire behind this smoke. I cannot think of anything that the socialist-leaning politicians who now are in control of this country might attempt that would create more havoc, stir up more anger and set this nation on a course of internal dissension than this ill-conceived plot.
What is behind this is twofold – first – the Administration and its allies in the Congress have so deeply entrenched this nation into perpetual indebtedness, that the country will be forced to issue almost numberless Treasuries in order to finance this unprecedented spending spree. Any move towards “guaranteeing” a return on retirement would necessarily have to include Treasuries, which are the only investment vehicle that I am aware of that can “guarantee” a return. Such a move would require that equities be sold off and the funds from the sale be invested into Treasury debt. In effect, the government would create a brand new source of demand for the vile IOU slips that they are creating by the trillions.
Secondly, there is also no doubt that politicians looking to buy votes are salivating over the prospects of those billions of dollars of funds “just sitting out there” in retirement accounts. They could then spend that money on more government goodies.
What is particularly galling is that the same government whose voracious appetite for spending money that they do not have and thus has forced the unlimited printing of Dollars to finance the same, is now supposed to rescue us all from the ravages of the very inflation that they themselves are responsible for creating. And they wonder why the public is so angry?
Should this Administration even seriously propose anything remotely resembling this, we would see a selloff in the equity markets that would rock this nation to its core. Imagine the selling involved with the government forcing private citizens to exchange equities for the “safety of Treasuries”. It would be pushed to the public as a means to help the poor and “unsophisticated investor” avoid the loss of their retirement savings with Big Brother guaranteeing them an income in their old age.
I do not want to unnecessarily alarm anyone but the fact that this is now even being discussed is reason enough for concern among investors who should continue to monitor any development along these lines. I am still awestruck that such talk has now come out into the open. Perhaps we are seeing a trial balloon of sorts.

Here is the entirety of the House GOP Savings Recovery Group letter outlining the issue that was sent last night to the Labor and Treasury Secretaries:

The Honorable Hilda L. Solis Secretary U.S. Department of Labor 200 Constitution Avenue, NW Washington, DC 20210

The Honorable Timothy Geithner Secretary U.S. Department of the Treasury 1500 Pennsylvania Avenue, NW Washington, DC 20210

Dear Secretaries Solis and Geithner:
As members of the Republican Savings Solutions Group, we write today to express our strong opposition to any proposal to eliminate or federalize private-sector defined contribution pension plans, such as 401(k)s, or impose burdensome new requirements upon the businesses, large and small, who choose to offer these plans to their employees.
In the Annual Report of the White House Task Force on the Middle Class, Vice President Biden discussed at length the creation of so-called “Guaranteed Retirement Accounts, (GRAs)” which would provide for protection from “inflation and market risk” and potentially “guarantee a specified real return above the rate of inflation” — presumably at taxpayer expense. In the Report, the Vice President recommended “further study of these issues.”
The Vice President’s comments are troubling, insofar as they come on the heels of testimony before Congress from supporters of GRAs proposing to eliminate the favorable tax treatment currently afforded to 401(k) plans, and instead use those dollars to fund government-invested GRAs into which all employees would be required to contribute a portion of their salary — again, with a government subsidy. These advocates would, essentially, dismantle the present private-sector 401(k) system, replacing it instead with a government-run investment plan, the size and scope of which remain to be seen. This despite data showing that 90 percent of households have a favorable opinion of the existing 401(k)/IRA system.
In light of these facts, we write today to express our opposition in the strongest terms to any effort to “nationalize” the private 401(k) system, or any proposal that would dismantle or disfavor the private 401(k) system in favor of a government-run retirement security regime.
Similarly, and more recently, the Departments of Labor and Treasury have jointly issued a “Request for Information” regarding the “annuitization” of 401(k) plans through “Lifetime Income Options.” While we appreciate the Departments’ seeking guidance and information from all parties and stakeholders in advance of regulatory activity, we strongly urge that the Departments not proceed with any regulation in this area before they have carefully and thoroughly considered all of the information received.
More specifically, we urge that the Departments take no action to mandate that plan sponsors — often, small businesses — include a “lifetime income” or “annuitization” option if they choose to offer a 401(k) plan to their employees, or that beneficiaries take some or all of their retirement savings in such an option. Data shows that 70 percent of Americans oppose the concept of a mandated annuity or government payout of their 401(k) plan. On a more fundamental level, Congress should not be in the business of choosing “winners” and “losers” among retirement security stakeholders. Instead, we urge the Departments to make it easier for employers to include retirement income solutions in their savings plans and to help workers learn more about the value of their retirement savings as a source of retirement income. Finally, to the extent new mandates and bureaucratic red tape from Washington push small employers out of the business of offering these plans to their employees, we would submit such an effort weakens, rather than strengthens retirement security.
We appreciate your consideration of our views in these important matters and stand ready to work with you and the Administration to promote secure and adequate retirement savings for all Americans.
Sincerely,
House Republican Leader John Boehner (R-OH)
Rep. John Kline (R-MN)
Rep. Dave Camp (R-MI)
Rep. Sam Johnson (R-TX)
Rep. Dean Heller (R-NV)
Rep. Brett Guthrie (R-KY)
Rep. Michele Bachmann (R-MN)
Rep. Pat Tiberi (R-OH)
Rep. Bob Latta (R-OH)
Rep. Erik Paulsen (R-MN)
Rep. Lynn Jenkins (R-KS)
Rep. Ed Royce (R-CA)
Rep. Buck McKeon (R-CA)

Link to letter…



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