Skip to comments.Now Obama Wants Your Pension
Posted on 04/28/2013 7:40:24 AM PDT by Kaslin
If you are a regular reader of this column, you know, unfortunately, there is a consistent theme that derives from the Lefts constant attempt to develop new rationale to extract money for the ever-expanding cost of government. President Obama dropped his latest stink bomb on hard working Americans with the release of his delinquent budget. He is coming after your 401 (k).
This was a shocking development to us, but apparently this idea has been floating around the Leftist-sphere. While researching the proposal we read a column from the Brookings Institute touting the proposal to cap the amount of money one can have in their retirement account. The statement is much in the vein that the government cannot afford to give tax benefits out on these plans like they have been doing. Otherwise, your earnings belong to the government and anything we let you keep you should be grateful for.
Most people are confused about their pension plans, but they are really quite easy to understand. There are two types of pension plans, both quite self-explanatory:
1. Defined Benefit This means the plan tells you what you will get as an annual payment when you retire. These kinds of plans have been dispensed with for most people in private industry as they turned out to be too unpredictable and costly. Only about 10 million private industry Americans, including retirees, are covered by these plans. Defined benefit plans are the kind of plans government employees are covered by. That is why we have pension plan problems at all levels of government in the United States.
2. Defined Contribution These are the kind of plans with which most American workers outside of government have become familiar. Just as the name suggests, the plan --whether it be a Traditional IRA, Roth IRA, 401 (k), SEP/IRA or Simple Plan -- tells you how much you can contribute. For example, in a Traditional or Roth IRA, you can contribute $5,000 in one year unless you are over 50 years old, in which case you get to contribute up to $6,000. In these plans there is no required annual contribution. All these plans have personalized accounts for all contributors, and when you leave a job you can transfer the money to another place without penalty.
What the Obama gang is saying is if you have a 401 (k) and it has too much money in your separate account, you must stop making contributions. In their proposed limitation Obama uses his typical language. They state some peoples pension accounts have substantially more than is needed to fund reasonable levels of retirement savings. Of course, what is needed or reasonable is not your decision, but the decision of these government wonks.
What is the reasonable level? It is easy just read how they determine that. They say they want to limit an individuals total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year of retirement. Easy as pie to understand. What do you mean you read it three times and dont have a clue? What do you mean the person who wrote that should be hung by their thumbs until they beg for mercy? Oh and by the way that calculation has to be redone every year. Only government wonk attorneys who never had a real job could come up with such garbage.
This is all to stop rich people from accumulating too much money in their retirement plans.
But is that not what the limits of $5,000 or $17,500 for 401 (k) plans or $50,000 in your SEP/IRA are for? Is this really punishing the rich?
Lets say you are a mid-level manager at a company. You make a nice living of $85,000 per year and you participate in your companys 401 (k) plan. You put in $8,000 and your company puts in $2,000 of matching funds. You direct the people who invest the funds to buy your companys stock. You have done that for the last 15 years. Your work at Google or Wal-Mart or Microsoft and your pension is now worth $8,000,000. You are now going to be penalized because you went to work for a company that has been successful and you bought their stock in your pension plan?
That story has happened thousands of times. And it could happen just as often to a mid-level employee as a highly paid employee because there are contribution limits. Yet, Obama wants to punish you. He would rather continue the lie about the financial viability of Social Security and discourage Americans from contributing to their self-funded, limited-contribution pension plans.
This is just more evidence our President has no clue about private industry. He wants to limit what you can have in your pension to pay for the excessive pensions of government employees that are funded with little or no money from their own pockets.
This limitation on pensions will probably not see the light of day in the final budget for 2014. But this is just the beginning of the war to enact this idea. Remember these people will come up with any scheme and rationalize it to increase taxes. This is just another fine example of their conniving minds.
He doesnt need Congress for this. He can do it by EO via Treas. Dept.
And for those of you who think you will never have the amounts of savings to be affected, when the SHTF, either the savings you have accumulated become worthless or you kept up with inflation and they’ll get you.
I thought that Congress had to pass all tax laws. i don’t think he can do it by EO (if he tries, he will be sued).
Treas. Dept. = Treason Department?
” The statement is much in the vein that the government cannot afford to give tax benefits out on these plans like they have been doing. “
Well, maybe the government should get a ^}*ing job.
How exactly will they take my money? Will my bank just hand it over to them?
Tax changes, fees, etc.
This administration and it’s lackeys have two words they use in every argument to try and make their case, “need” and “reasonable”.
Whether its about gins, money, healthcare, energy, it’s always the same.
Who are they to decide? And it would always be a moving target, like the multitude of “the secretary shall decide...”, in obamacare.
“Gins” = guns...sorry
When has the law, or the Constitution stopped this guy? When has Congress had the guts to seriously call him out?
Any yes, once govt gets this power it will expand. The income tax started out as 1% on the top 1% of income earners. When the seat belt laws passed we were assured that it would never be a primary offense. Need I go on?
Naturally, all members of the Congressional, Judicial and Executives branches of government, and their aides, will receive a lifetime exemption from this.
Not working out so well for the GM bondholders. Centuries of law were thrown out the window so Obama could give lots of money to the Unions.
That’s true but this will affect a lot more people (including many people who voted for Zero).
Mr. Obama bring back American jobs.
That is what will help. American jobs.
The government WILL go after retirement accounts simply because the credit markets will dry up and stop lending money for trillion dollar plus deficits - so some other means has to be found. In retirement accounts, of all types, there is roughly 15 trillion dollars - that is enough to pay for another 10 to 15 years of borrowing, which is long enough for most politicians to get what they want out of their jobs.
There are basically 3 types of retire accounts that have a pool of “stored money” in them, and they vary in how easy it is for the consumer to recover money from before the government seizes them.
First you have IRAs, which are totally owned by the consumer - you can withdraw from them any time, but you pay income tax on it - and if you’re working, your marginal rate on that money can be high - at least 25%, maybe well into the 30s if it’s a lot of money at once. Plus, if you’re under 59.5, you pay another 10% penalty on the amount withdrawn, on top of income tax.
Next you have 401k’s - they are employer-managed, but the money is in the name of the consumer (that’s why you get a statement on a regular basis, with a balance on it). The rules for withdraw are similar to an IRA (income tax, plus 10% if younger), but once you withdraw, assuming you’re still working, you have to wait 6 months to start depositing again - and if you have a decent employer match, that can cost thousands.
Finally, you have defined pension plans. There is no “pot of money” with your name on it that you control, but there is a promise for monthly payments once you start drawing on it (either when you retire, or some time later). The amount you receive is based life expectancy, marriage handover (if you die), and how much the company contributed for you (typically based on your salary). There is no way (that I know of) to touch this money before you leave your company. Also, depending on the company, you may or may not have the option of a lump sum of money (after you retire), or you’re simply stuck with monthly payments. Pensions are insured by the federal government, up to certain limits.
Of these, the easiest for the government to grab are pensions, since there is no recourse for consumers. Companies with pensions have (or are at least required to have) a “pension fund”, which may have many billions of dollars in it. The government would simply take the money in that fund, and take over the promises to pay the retirees out of it. Next in line are 401k’s, due to their 6-month penalty after withdraw - makes it harder for people to pull out their money. Again, the government grabs your money (in this case) and gives you a promise to pay it back in monthly installments (i.e., an annuity). Finally, there are IRAs. For a lot of people, IRAs are sitting there, waiting to be grabbed by the owners - particularly if they are in bad times and don’t have much income (i.e., the 10% penalty isn’t much if you’re not working in the first place, or if you’re not making much) - so the government will likely go after these last, as many people (me included) will cash them in first.
The bottom-line - some $15 trillion exists in accounts not owned or controlled by the government. The country INSISTS on running trillion dollar plus deficits (and sorry, conservatives are as much to blame as liberals). The $15 trillion will by used to buy time - a decade, maybe a bit more.
So what’s in it for the government: They get to set the payback rates for your account, and they get to keep the difference (which will likely be most of it).
At that point, the country will be totally bankrupt. So why didn’t this happen in Cypress - when they went right into bank accounts? Simple - people in Europe don’t save for retirement - it is not their system. They’ve always relied on government to pay them in retirement and never saved in the above forms...so they’ve been hit faster and harder - and the knowledge of the $15T sitting ready for government confiscation is probably why we’re not yet like Cypress or Greece - but we will be broke sooner than later.
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That's exactly what they did in Cyprus, where the government closed the banks, and had armed police who limited what could be withdrawn at ATMs per day.
Enjoyed your laying out of the facts. Where do we go from here?
Wonderful point that is lost on many!
If I might add, how the current desire to get their hands on our wealth will work, they will get this the same way they did with the AMT (alternative minimum tax). When that became law it only affected a handful of people who weren't "paying their fair share". Now it affects millions mostly due to inflation.
I fear we have passed the point in this country where a principal such as the inviolate nature of property rights (my wealth is mine) is non existent and property (bonds in your initial example are secured by assets, ie., property) ownership is subject to the whim of the mob. I don't see this trend changing our schools, media and govt all promote collectivism. By the time people finally figure out that all this confiscation of wealth affects them as well as their neighbor it will be too late.
Unless you are prepared to move your savings and investments out of the country the govt will be able to get their hands on it. The gatekeeper that kept the mob from getting their hands on the product of your efforts was govt, laws and a society that viewed personal property as untouchable. We live in a country that no longer holds that view and our govt is led by collectivists. Can we elect politicians who will fight to stop this? I don't know. I doubt it.
We are watching a long slow train wreck and I don't believe it can be stopped.
In some cases, the Dim-controlled Senate can "deem" them to have been passed by the House.....
I HAD a nice pension, but I took it with me in a canoe, and...
Not much hope. The Baby Boom generation had it in for this country from the start, and Europe (and you guys know that doesn’t mean everyone in that generation). They simply want our society uprooted and destroyed, and they don’t even care what replaces it. They simply consider it beyond repair.
In the 60s they were protesting and looking like idiots. In the 70s and 80s, they bided their time, inching up the power train. Starting in the 90s, they started amassing power and now run the country. In the 60s 70s, and 80s, they wanted us defeated both economically and militarily (which is why they sided with the Soviets on every military issue). Now they’re ok with just economic collapse here...and, as Ram Emanual said - never let a good crisis go to waste. So here we are $17T in debt, trillion dollar deficits forever...a crisis if I ever saw one.
...but an opportunity for those to achieve a life-long dream and bring us down - and they are making darn sure that they are successful as fast as they can.
I believe what is going to happen will play out over a long time. Our economy will increasingly become "central planned" and the ability to amass capital for investment will decline because of taxes, regulation and reduced income because of inflation. Eventually the middle class is going to have to pay "their fair share" to govt and we will begin to see each generation have a little lower lifestyle than their parents.
The "progressives" who have destroyed the unique American culture will be stunned to discover that a world after America will be more violent and America will be the new Israel. A nation blamed for everything that is wrong and a nation that the world will happily destroy. I think we are seeing the emergence of totalitarian rule as the norm.
Yea, it’s sad. We almost avoided this in the 1980s, when we nearly got a balanced budget amendment into the Constitution. Back then it would have been easy, as we were on our way to surpluses. But we got cold feet in the end. It was our final chance.
At this point, we are in an unsustainable stalemate. Republicans insist on low taxes, and Democrats insist on high spending (and Republicans also will not compromise on Social Security or Medicare - the two programs driving us broke). So the path of lowest political resistance is to do both - keep taxes low, as spending goes through the roof (mainly on entitlements). So it will end, in an ugly way.