09.08.2010 0

Big Government Knows Best for Retirement Savings?

New legislation being proposed by Senators Jeff Bingaman and John Kerry could force as many as 60 million Americans to invest in government bonds via mandatory retirement accounts.

According to a recent report by World Net Daily’s Jerome Corsi, the law would require “employers and employees to contribute into a retirement account for every employee and demand that a portion of that contribution go into a federal-government created annuity that would be funded by purchasing Treasury debt.”

On the surface, it appears the nation’s cash-strapped government wants to force Americans to lend money to the Treasury to keep up with is ever-widening funding obligations.

On September 14th and 15th, the Department of Labor will be holding joint hearings with the U.S. Department of Treasury to discuss “lifetime income options for retirement plans” that would be included in the plan.

The “options” that workers would be forced to contribute to are so broadly defined that the Department of Labor could force investment into just about anything. Included are “passbook savings, certificates of deposit, insurance contracts, mutual funds, United States savings bonds,” and “similar classes of assets,” including treasuries.

Such legislation could create some 60 million potential new Investment Retirement Accounts (IRAs), according Mark Gutrich, president of Denver -based ePlan Services. That would make the Department of Labor the largest pension administrator in the nation, as it would entail the de facto nationalization of IRAs.

Assuming an average annual income of $50,000, if just 1 percent was devoted to treasuries purchases, the bill would expand government’s ability to borrow by about $30 billion every year, or $300 billion over ten years.

That may even be lowball estimate, especially should the sovereign debt crisis dramatically worsen in the U.S. If it does, the Department of Labor could arbitrarily expand retiree investments into treasuries by regulatory fiat.

But, even if workers were not forced to invest in treasuries to finance the burgeoning $13.442 trillion national debt, they would still nonetheless be coerced into government-mandated retirement accounts. This is similar to the individual mandate to purchase health insurance under ObamaCare.

Americans for Limited Government President Bill Wilson described it as a “‘one size fits all’ retirement account.” Making matters worse, Wilson said it would “disproportionately impact younger and lower-income workers, who will now have less ability to save for new home purchases or pay off college expenses and debt, all of which occurs earlier in a worker’s career.”

“This is another attempt by government to tell individuals what they have to do with their own money, stripping them of the right to make their own personal investment and life decisions,” Wilson added.

Wilson warned against mandatory government bond purchases. “By increasing the American people’s stake in the government debt, the incentive will always be to expand the national debt to finance retirement benefits,” he said.

That’s because the way government pays off principal and interest owed on the national debt, and thus generates a return for investors, is by selling even more treasuries. This is known as “rolling over” the debt. So, in order to guarantee a return for the retirement savings accounts, the government would be forced to sell even more treasuries than the retirees bought in the first place.

So, if the 60 million workers earning on average $50,000 every year invested in newly issued 30-year treasuries every year for thirty years, there would be a net principal liability of $900 billion owed to the IRAs. At a hypothetical 4 percent yield, the government would have to sell another $1.980 trillion in debt on top of that to pay out in benefits to the retirees.

On its face, that could require increasing the debt by as much as $1.080 trillion.

All of which would make ever reducing or retiring the national debt next to impossible — the only way to do that is by slowing the rate of treasuries auctions. And by tying the fulfillment of pension obligations to an ever-expanding national debt, the government appears to have found a way to guarantee that the debt is never paid off.

Which may be exactly what the bureaucrats have in mind.

Robert Romano is the Senior Editor of Americans for Limited Government (ALG) News Bureau.

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