Wednesday, January 13, 2010
Obama to meddle with your retirement account?
Administration considers forcing investors into Treasury debt
By Jerome R. Corsi
The Obama administration appears to have come up with a novel way of financing trillion-dollar budget deficits – demanding IRA and 401(k) holders buy trillions of dollars in Treasury bonds.
With the Treasury needing this year to see another $1 trillion in debt to finance the anticipated federal budget deficit, and the Federal Reserve about to discontinue its 2009 program of buying Treasury bonds for the Fed's asset portfolio, the Obama administration is scrambling to find ways to sell government debt without having to raise interest rates.
CNBC's Rick Santelli broadcast the rumor the same day from the trading floor during CNBC's "Power Lunch" show.
Spokesmen from both the U.S. Treasury and Department of Labor confirmed to WND that the federal agencies about to enter a pre-regulation public comment phase on the proposed rule change.
But the agencies are getting serious pushback from the mutual fund industry, objecting to what some financial planners see as a government attempt to divert hundreds of billions of dollars of private retirement accounts into federal government debt, regardless whether the investment in Treasury bonds is in the best interest of the retirement-oriented investor.
On the Department of Labor website, the transcript of a Dec. 9 webchat
Under ERISA, the Department of Labor regulates approximately 700,000 private pension plans, with approximately $4.7 trillion in assets.
"Lifetime Income Options," code words for annuities, are also listed in the Department of Labor's regulatory agenda for the Employee Benefits Security Administration
The government's argument is that IRA and 401(k) investors lost principle in the stock market when the Dow Jones Industrial Average plummeted from a closing of 14,164.53 on Oct. 9, 2007, to 6,547.05 on March 9, 2009.
For instance, Fidelity Investments reported the average fund balance on the approximately 11 million accounts Fidelity manages dropped 31 percent to $47,500 at the end of March, from $69,200 at the end of 2007.
With the stock market rally since March, Fidelity further reports
While U.S. Treasury bonds have had historically lower yields than equity returns, government proponents of the idea argue Treasury bonds are safer, guaranteed by the federal government to pay principal and interest regardless of market conditions.
Furthermore, annuities as life insurance contracts have a unique investment advantage of being able to pay a specified lifetime income, regardless how long the annuitant lives.
The Investment Company Institute, a national trade organization representing the mutual fund industry, argues that the distinction of the Obama administration proposal would be to require annuities funded with Treasuries to be embedded within IRAs and 401(k) programs, using the fear of loss as a reason to demand retirement investors own Treasuries.
Right now, IRA holders and investors in 401(k) plans are free to invest in Treasury bonds, if they choose.
Also, annuities are a popular settlement option for IRAs and 401(k) plans that transition from the accumulation phase to the payout phase.
Annuities are an attractive payout instrument, because annuities offer the part of lifetime income and only a portion of each payout installment is considered taxable as return of investment principle.
Interest or investment earnings in annuities accumulate income tax-deferred until the annuitant takes out money, either in an unscheduled withdrawal, or in a payout option extending over a specified number of years in retirement, or for the lifetime of the annuitant.
The unusual nature of the Obama administration's proposal would be to place as an investment a tax-deferred instrument like an annuity within a tax-deferred retirement program. Investment advisers typically use annuities as an investment option for after-tax dollars, not as a required investment option within a retirement program like an IRA or 401(k) that is already income-tax deferred.
A survey conducted by the Investment Company Institute
Moreover, 96 percent of households in the survey responded that retirees rejected the idea that the government should mandate turning IRA or 401(k) assets into annuities, asserting instead that retirees should make their own decisions about managing retirement assets and income.
The Investment Company Institute member companies