Government Takeover of 401k - Conspiracy Theory or Reality?

Is the federal U.S. government takeover of 401k plans an actual proposal or is it just merely another conspiracy theory? There have been rumors circulating for years that a government takeover of retirement assets was indeed in the works, but are there supporting facts to back up these rumors?

In a criminal investigation, one of the key elements of that investigation is to determine a motive. In this case, does the federal government have a motive to confiscate the retirement assets of Americans? One simple look at the numbers and a motive is easy to surmise. The U.S. Federal Government is over $19 trillion in debt. Americans have over $24 trillion in retirement assets. The short answer is yes – money is the motive.

Now that motive is established, the next problem to solve is “the how”. How would the federal government get control of our retirement assets, including 401(k)s, IRAs, stocks, bonds, etc.? There are numerous ways this could be accomplished, but three that stand out are by making laws that put retirement assets under government control, by regulating them under federal control, or by executive order, perhaps in the face of a “national emergency”.

One program that puts some retirement assets under the control of the federal government is the myRA program. The myRA, or “my retirement account” program was created by executive order of President Barak Obama and announced by him during the State of the Union Address in 2014. This program was designed to “help” Americans save for retirement by investing in Treasury securities. Although administered by Comerica, the Treasury Department is the actual sponsor of the myRA program. Therefore, this is one retirement program that is already under federal control.

A bill that has been introduced in both the House and the Senate for many years is the Automatic IRA Act. This bill has had many sponsors over the years including Senator Sheldon Whitehouse, Senator John Kerry, Senator Jeff Bingaman, and the persistent one Representative Richard Neal who has introduced the bill on numerous occasions.

The Automatic IRA Act of 2015 is summarized as follows:

Amends the Internal Revenue Code to: (1) require certain employers who do not maintain qualifying retirement plans or arrangements to make available to their eligible employees a payroll deposit individual retirement account (IRA) arrangement (automatic IRA arrangement) which grants such employees the right to opt-out of participation; (2) require the Secretary of the Treasury to provide employers with a model notice for notifying employees of their opportunity to participate in an automatic IRA arrangement and to provide participants with an annual statement setting forth payments, earnings, value, and other specified information; (3) impose a penalty on employers who fail to provide eligible employees access to an automatic IRA arrangement; (4) allow employers who do not have more than 100 employees a tax credit for costs associated with establishing an automatic IRA arrangement; and (5) increase the dollar limitation on the tax credit for small employer pension plan startup costs.

Establishes an Automatic IRA Advisory Group to make recommendations regarding automatic IRA investment options.

Requires the Secretary and the Secretary of Labor to jointly conduct feasibility studies on: (1) extending spousal consent requirements to automatic IRA arrangements; (2) automatically transferring amounts saved by employees in retirement bonds into alternative, private sector, diversified investments when employees’ automatic IRA balances reach a certain dollar level; (3) using investment data to notify individuals with multiple small balance retirement accounts of consolidation options; and (4) using investment arrangements associated with automatic IRAs to assist in addressing the problem of abandoned accounts.

Directs the Secretaries to prescribe administrative guidance for the use of multiple employer plans by December 31, 2015.

Each time the bill has been introduced, it has died in committee. However, each time it dies in committee, it is reintroduced in the following session. This plan goes even further than the myRA program and clearly shows that the federal government wants in the IRA business and is quite persistent about it.

Forbes ran an article in 2012 titled, “Watch Out: Your 401(k) Is Being Targeted“. In this piece, the author mentions what is known as the 20/20 plan.

Under current law, employees will be allowed to contribute up to $17,500 in their 401(k) plans in 2013; up to $23,000 for people 50 and older. But under 20/20, you and your employer together would be permitted to contribute up to $20,000 or 20 percent of your salary, whichever was less, to your account; that figure includes your employer’s match.

This piece goes on to discuss the possibility of stripping the tax incentives from 401(k) plans as a means to reduce the deficit.

In January of 2015, the New York Post ran an article titled “White House looking to creep into 401(k)s“. In the piece, the author Jonathon M. Trugman discusses the current state of 401(k)s and IRAs and how fiduciary standards for financial brokers say that a broker must act in an investor’s “fiduciary best interest.” Here’s an example from the article on just one of the possible problems:

What if an investor who has been successful with Apple wants to buy 100 more shares of the tech giant for his or her self-directed IRA?

Does the administration really want a broker to interfere because in the broker’s opinion it isn’t in the “best interest” of the investor?

It’s all about control. It’s your money, America. The system functions quite well. Adding more pages of red tape will not improve performance, but it just may get your broker to drop your account, just as many credit lines were closed after Dodd-Frank passed.

These are but a few examples of the federal government looking to get into the retirement industry and/or to gain control of retirement assets.

We’ve established a motive for the government confiscation of 401(k) and other retirement assets. We’ve shown government intervention in the retirement industry by both executive order and by government regulation. We’ve also shown numerous attempts at passing laws that plunge government deeper into the retirement industry’s business, and we didn’t even get into the blowback from Dodd-Frank.

The U.S. government is in such debt that merely “paying down the debt” is not a viable option. Drastic measures will have to be taken in order to service such debt. Does that mean a confiscation or takeover of private assets?

That remains to be seen.