Getting Personal
Nationalizing 401k assets?
Question: Will you be writing of alternatives to 401ks in light of articles intimating the House is interested in the idea of nationalizing 401k assets? Bill, Golden Valley, MN
Answer: I've seen the phrase "nationalizing" retirement money in a number of different contexts. Still, this rumor seems to be getting some play for a number of reasons. For one thing, the list of "unthinkables" that have actually happened is long and growing. A conservative, Republican Administration engineering a more than $1 trillion bailout -so far--of the financial system. The government seizing control of mortgage giants Fannie Mae and Freddie Mac, and the global insurance giant AIG. The failures of investment banks Bear Stearns and Lehman Brothers. The quasi-nationalization of the banking system. The American taxpayer backstopping the $3.5 trillion money market mutual fund business. The possibility of another Great Depression.
For another, Argentina's government is out to nationalize some $30 billion in private pension funds. The stated reason is to protect retirees from falling stock and bond prices. But the real reason, it appears, is a desperate move by the government to shore up its deteriorating finances.
Last, charges are flying that Sen. Barak Obama will pursue a socialist agenda if he wins the race for the White House, as appears likely.
While all of us have to be careful when we say something will never happen, 401(k) assets and the like won't be seized by the government. No way. No how. Period.
To be sure, if the financial crisis continues the government may takeover or invest in more financial institutions that manage retirement assets--from insurance companies to banks-- but the U.S. government isn't the same as the Argentinean government. Congress and the White House aren't going to seize our retirement money. Barak Obama isn't a socialist and he has no socialist agenda.
That said, there are good reasons for wondering whether Wall Street should manage any of our long-term retirement savings funds. Put somewhat differently: Is the 401(k) plan, which has become the main retirement savings vehicle for the American worker over the past three decades, a mistake?
I think the case for rethinking the 401(k) as a pillar of retirement savings is compelling.
To be clear, the democratization of stock ownership is a welcome and powerful trend. Two hundred years after 24 New York brokers and merchants met on Wall Street to sign the "Buttonwood Agreement," a pact that established standard commissions for trading securities, investing now has all the characteristics of a mass social movement. People's Capitalism has helped fuel entrepreneurship and risk-taking. Despite abuses, stocks options, restricted stock, profit sharing plans, and similar equity-based compensation schemes are critical building blocks to innovation, the driving force behind economic growth. Thanks to the Internet and advanced telecommunications networks, it's cheaper than ever for individual investors to buy securities.
No, the question is focused on retirement savings, the money employees set aside during their working years to smooth out their standard of living in retirement. Employees bear all the responsibility if the worker make mistakes, and time to make up for investment mishaps shrinks as stomachs go slack and hair turns gray. It's an axiom of modern finance that the only way to create the possibility of higher returns is to take on greater risk. But the risks employees are absorbing today seem disproportionate to the potential rewards.
What's more, our retirement savings system is far too balkanized. There's 401(k)s for the private sector; 403(b)s for non-profits; 457s for state and local government employees; and SEP-IRAs for the self-employed. Then there are IRAs and Roth-IRAs. All have different rules, income limits, and restrictions. For example, you can put a maximum of $15,500 into a 401(k) while the contribution limit to an IRA is $5,000. The maximum into a SIMPLE IRA is $10,500. It makes no sense.
There is plenty of room for improvement. There have been hearings on Capital Hill recently, looking into retirement security. There should be more.
Pension experts are working on ideas that may make it easier for workers to save for the last stage of their lives. For example, a number of academic quant jocks are exploring creating annuity-like products that would guarantee workers a steady, inflation-protected income during their golden years but would be less expensive for companies to offer their employees than the traditional defined-benefit pension fund. The demand then would be on workers to take the responsibility of saving but they would avoid the burden of investing.
These ideas are worth exploring.
But as for seizing pension assets? Not a chance.
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Comments (16)
October 27, 2008 9:55 PM PT
Obama's not a socialist? Redistribution of wealth? Talking about how to use the courts and/or legislation to make up for where the civil rights movement fell short and wealth wasn't redistributed? Are you kidding me?
I'm sure there was a time when nobody thought the federal government would raid social security. Why nobody would mess with health care for the elderly! And now you're gonna go on record and say absolutely no way would the gov't ever raid 401k's?
This article has to be a joke. Feel free to continue to live in oblivion and ignore reality, but you just lost all credibility.
October 29, 2008 7:45 AM PT
Unfortunately, there is already plenty of redistributing of wealth going on: From the American worker to the Financial industry. Why is only called class war when someone talks about redistributing wealth from the richer to the poorer. The rich have been waging class war on the poor for centuries.
October 28, 2008 6:10 AM PT
Chris says, "Barak Obama isn't a socialist and he has no socialist agenda." Oh. Ok...That "spread the wealth" statement was just taken out of context. Right?
I think Chris has side-stepped the issue here. Sure, the Left probably won't (emphasis on probably) seize our 401(k) assets, but they will take steps to making 401(k) plans less attractive. And it's all in a plan to "spread the wealth". For one plan's details, see the article below, and tell me how this it not "socialistic":
http://iwilly.wordpress.com/2008/10/26/wsj-are-401ks-safe-from-congressional-democrats/
October 28, 2008 6:49 AM PT
My family fled Russia to avoid socialism and communism. Now it comes here. If I am not free to earn my own retirement and I have to earn for those who won't, how should I feel about that? Why don't they share their own wealth with those who don't earn? Didn't Bill and Hilary make over $18 million dollars on their book deals, (memoirs from two pwoplw who couldn't remember anything under oath), why don't they donate all that money to welfare? How about we make it so that politicians can't ever earn more that $40,000 per year and see how many people actually run for office going forward? I think a salary cap for politicians at an average American's salary would be the answer to this ill fated "greedy politician who expects the average earning American to share the wealth" plan.
October 28, 2008 3:53 PM PT
Amen. Politicians should be paid a stipend and have 40 hour/week jobs like everyone else then perhaps the system will get fixed.
November 3, 2008 11:04 AM PT
Salary caps & term limits
October 28, 2008 7:46 AM PT
The 401(k) system is still relatively young. A person who started her career at 22 in 1982, when the first 401k's appeared is only 48 today. To pronounce the system a failure because we're in a once-in-a-lifetime financial crisis is ridiculous.
October 28, 2008 5:41 PM PT
Farrell, you are a lemming. As a young boy, when my mama read me the story of Robin Hood, she taught me that Robin Hood was a thief. I have remembered that all my life and it has helped achieve great perspective of the world. Im tired of doing the responsible things and getting pounded in the arse for it. Sometimes, idiots deserve to be weeded out. You ever read about Darwin? the strong survive. We dont need socialism to steal from the strong to prop up the dummys! You should be arrested for posting such crap!
October 29, 2008 7:49 AM PT
Robin Hood didn't rob from the rich and give to the poor. He was just giving the poor what they'd earned all along.
Apparently you haven't read Darwin. It is survival of the fittest. And since when are conservatives interested in applying real science to public policy?
Finally, arrest someone for writing something? I have a friend who spent 6 years in an East German Prison for writing something. That's the real socialism.
October 29, 2008 7:56 AM PT
Sorry, this is my third comment, but did any of the previous commenters actually read Chris Farrell's article? He wrote that it's worth taking a look at other ways to save for retirement. How can the current alphabet soup of plans be such a sacred cow? Anyone who wants to invest in mutual funds for their retirement will continue to to be able to do so. If the tax benefits of different plans are changed or removed, it should make all of you who are so worried about socialism breathe a little easier.
October 30, 2008 11:32 AM PT
they are going to seize your 401k, lock in your losses, roll it into a welfare program where everyone gets a payout but not everyone pays in. And when that happens, when they steel 150K of my personal savings, LOOK OUT!, game over baby. there aint gunna be a country to redistribute my wealth.
October 30, 2008 3:47 PM PT
its a rumor! r-u-m-o-r
I can see why other NPR had to take down their blogs. Why personally attack Chris?
October 31, 2008 5:40 AM PT
I am so tired of hearing about the income gap. I am an engineer with a master degree and my peers and I general make less than I auto worker. There is your greed -- unions. The USSA is coming -- the Union Socialist States of America. Government will creat job when we are all working for the government.
November 3, 2008 1:23 PM PT
Everything about Barak 0bama screams socialist. That alone causes me to vote for the other guy. The fact that his party is discussing siezing control of our 401K accounts ought to convince every other American as well.
Who is moving to Argentina? People have sacrificed, suffered and died to come to America, if 0bama is elected socialism will CHANGE this. You can believe in that.
November 7, 2008 8:51 AM PT
Two things:
One, the word "rich" seems to have become an ephithet. "The rich" are waging class warfare. "The rich" should pay their fair share.
Josh, I grew up in a mobile home in the woods of south Georgia and my husband in the projects of Hartford. He's a former Marine who used his VA benefits and student loans to obtain his degree, and I put myself through both undergrad and graduate school. He's an engineer and I'm a social worker, hardly glamorous professions. We foster and adopt special-needs teen boys.
We live below are means and save about 20% of our income for retirement, and suddenly we have found ourselves lumped in with "the rich" because as a household we are in the top 5% of income earners. It's as though we have magically become evil because we have been successful in our fields. We haven't waged class warfare on anyone, we've just worked hard and not bought a lot of stuff. It's easy to demagogue "the rich", but I caution you against making such generalizations.
Second, I agree that the current alphabet soup is not a great way to plan a retirement and think that simplifying the process would be good. But so far the only option that I've seen get much discussion is the idea of governement-run retirement accounts paying 3% interest. (a) That interest rate is not enough to create a genuine retirement account. It's basically a savings account, and those are available already; (b) The government has fouled up social security to such a degree that I have no confidence whatsoever in the viability of such proposed plans. While simplification may be part of the answer, I can't see how government control will improve things.
November 8, 2008 1:33 PM PT
Hmmm! I don't trust the Government, but how do like them Wall street boys? Personally, I think people should be given the choice to pick whether to go with the Red taped Government plan or take the chances with Mr. Pinstripe MBA and his slick talking buddies. Isn't this what America is about? I hope they (the Government) stop treating the both us (the public) and the self serving corporations like little thin skinned babies who can't take their licks!