IOUs for your 401K?

Is Congress going to take away your 401k?† Perhaps.† And if it does, the reasons it offers may shade the truth.

First, I am writing this in advance.† When you read this I will be in a remote part of Europe.† So if anyone has come out with concrete plans for dismantling the 401k I apologize for being out of date.

Secondly, we have not seen solid proposals for doing away with 401kís.† We have seen only trial balloons.† If anyone is serious about canning them we will likely see a lot more such balloons.† And the politicians would likely do a lot of polling to find out how folks would react.

The idea floated is that 401kís donít do what they were supposed to do.† They were supposed to inspire us to save more.† The claim is that the $3 trillion we have stashed in 401kís is merely what we would have saved elsewhere. That is a bit hard to swallow.

Beyond that, 401kís came about almost by accident. The IRS created them for a few executives. Nobody in Congress intended them to be for millions of workers to save trillions of dollars.



People who want to end the 401k also point out that the tax protection they give is only for higher earners.† They are right.† It protects your retirement assets from taxes.† But half the workers in America pay virtually no income tax these days.† So they have no incentive to have a tax shelter.† They donít need a shelter from taxes they donít pay.

Anyway, envy of the wealthy usually works.† So the guys who want to end the 401k will use that.† They will tell us 401kís are unfair.† Because only the wealthy benefit from them.

In addition, they say 401k plans expose innocent folks to the wickedness of the stock market.† As per the last 6 months.

By the way, I cannot imagine government would grab existing 401k assets.† They surely would grandfather them.

So, what would they offer to replace 401k plans for the future?† They would force workers to have, say, 5 percent taken from their pay.† To go into a government-protected accounts for them.† My guess is that they would force employers to kick in money too.

And how would the money in those accounts be invested?† Government would take the money and issue special bonds for the accounts.† IOUs.† Your retirement account would then have a bunch of IOUs from government.† The IOUs would guarantee 3 percent growth, after inflation, per year.

Does this sound familiar?† It should.† This is how your Social Security fund works.† You are forced by law to contribute.† Your employer kicks in money too.† The money goes into a trust fund.† Government takes the money.† It spends it on various programs.† It gives the trust fund special bonds to replace the money.† IOUs.

In other words, your 401k plan would be replaced with a new type of Social Security account.† Probably with a different name than Social Security.† This account would protect workers from the stock marketís plunges.† It would force workers to save for retirement.

Good idea?† Some parts of the idea are certainly worth looking at.† A plan that gets all workers to actually save for their retirement has some merits.†

As for having government manage this?† I am not so sure about that.† If governmentís motive was truly to protect workers from stocks it could do so with a law.† It could insist people put money into private accounts.† And it could insist half the money go into bonds.† And ten years before retirement, 75 percent in bonds.

I do not for a minute feel that will be the driving force behind this.† If it gets off the ground, that is.† The driving force is that government needs money.† This would be a neat way of getting its hands on a lot of it.

The largest pile of money in the world is at Social Security.† Government got its hands on that.† It took it and left IOUs in the fund.† Now politicians see an opportunity to create another huge pile of money.† And there is no limit to its ability to issue IOUs.

From Tom ... as in Morgan.††††††††††††††††††

For more columns and for Tomís radio shows (and to write to Tom): tomasinmorgan.com.

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