Home » Politics, Retirement

Should Government Take Over Your 401(k)?

28 October 2008 56 Comments

Reports have surfaced in recent days over House Democrat attempts to make significant changes to 401(k) plans in our country. They first want to remove the tax break we currently receive by contributing funds to a 401(k) plan. Then, they wish to enroll everyone into a government run retirement plan where you would be required to put away 5% of your income to earn a 3% return. Let’s look at why this is likely to happen.

First, there are two reasons why I think that this is going to happen (assuming Obama is elected President).

1. The wealth building gap or the savings rate between races (specifically, black vs white) is fairly large. The interesting thing is that this still applies even when a black person earns as much as a white person. The current issue of Money Magazine (or maybe Smart Money) has an interesting article on this. The important thing to note here is the “fairness” rhetoric we are hearing in this political season. It is deemed unfair that a certain segment of society is more responsible with their money than the next. Therefore, government should control all entire retirement savings to ensure equal savings.

2. The stock market has suffered serious declines. It is easy for government to assume more power and authority during times of fear. Right now that fear is economical. You will see more calls for government to “buy up” 401(k) plans that have suffered severe losses. You will hear this concept presented as a bailout for individual’s retirements. Risk, apparently, is now a concept that is unacceptable.

If you don’t believe that this is happening, it has already been brought to the table in the House. I believe with the anticipated election win of Obama, House liberals are salivating at the opportunity to push through their very liberal legislation that they will be able to get through unblocked for the first time.

What is the next step? Confiscate all retirement funds to be distributed according to how the government sees fit? Or how about eliminating tax free withdrawals on Roth IRA money? I can easily see that happening; therefore, do not put all of your eggs in a Roth IRA.

I believe this is a very slippery slope that is going to be disastrous for our economy. I understand the allure many individuals have for Obama. He is a very impressive figure. I am very fearful, however, of the resulting policies of a completely unchecked Democrat-run government. Not just Democrats, but a Democrat party with very left-leaning leadership (Pelosi, Reid, Obama).

Meanwhile, the government is enjoying the best retirement benefits in the country. I am very concerned with the direction of our country. Soon, it seems, the government will be controlling more and more aspects of our lives: healthcare, retirement, etc. What is next? If oil prices skyrocket, will our government take over the energy industry to ensure “fair” gas prices? I’m not sure where this leads and I’m not sure I want to know.

Lastly, there is some people calling for closing the stock market for a week or so if we suffer another large drop in stock prices. What a joke. Maybe we should start policing casinos and lottery ticket distributors to make sure nobody risks losing any money. Maybe we should also discourage folks from buying cars that are known to depreciate more than others!

Did you like this article? Check out Part 2 of this article with more information and comments regarding the issue of government taking over 401(k)s!


  • Matt said:

    Hold on to your pocketbook!

  • bubba said:

    there will be blood

  • Click here said:

    I just pray that the plan we not work, it is not a welcome development and people will fight for it.

  • Chris said:

    You are better than this. This article was shameful.

  • kevin duffey said:

    What is shameful, reporting that there are real politicians who want to move to government controlled retirement saving or my opinion on where it could lead?

    I hope I’m wrong.

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  • David Wynn said:

    Interesting scenario, but I think pretty unlikely in the scope of things. Don’t forget, Kucinich brought the impeachment bill to the floor of the House too, and that was as dead in the water as they come.

    Legal creep and encroachment on our freedoms is always a threat and worthy of vigilence, but I believe the worry here is disproportionate to its small likelihood of passage.

  • Jared said:

    Sounds like an economic system in which the basic means of production are primarily owned and controlled collectively, usually by government under some system …

    Wait… isn’t that Socialism?

    Spread the weath around right Obama? Oh… man.

  • Mary in NY said:

    I’m not sure how unlikely it is….who would have thought the US would own 80% of an insurance co, or be so involved in the banking system as we are now? This is also a step towards socialism and there are those who say, why not socialism? This should be an eye opener to those folks!

  • Mary in NY said:

    Boy, I used to think I needed to leave the State because of the taxes…now I’m thinking maybe Australia!

  • DC Buppie said:

    IS it that one race is more responsible or given more opportunity?

    IA Shameful…

    Let’s think why they are making this move??? MM could it be that the current economic situation, where people are unable to retire now because they have no money in 401Ks due to GREEDY CEOs? Perhaps this is the motivation behind this step.

    It should be a option for American people, not a mandate.

  • kevin duffey said:

    DC Buppie,

    I would agree that certain races are given less opportunities on the whole. Definitely true. However, the interesting part of the study referenced in my article is that even when income is the same, blacks tend to save less. My opinion is that this is a cultural issue as opposed to a systemic issue.

    Greedy CEOS are not responsible for 401ks that have a lower balance than before. It’s called risk. Stocks carry risk. People like you that do not understand economics and markets and that make claims like this are why so many people buy into it. Are CEOs greedy? Yes, I would agree that they are. So are the average Americans who bought an overvalued house, cashed out the equity when it went up further and bought a jetskis, boats, cars, and other things they shouldn’t have been buying. When the home value dropped due to a normal economic correction, they were left with a bunch of stuff and even more debt. Gotta love the American way.

    Lastly, even your comment says that you are ok with turning over more of our lives to government when we have a weak economic situation. You said “the current economic situation.” The reality is that free markets by definition mean ups AND downs. When we interfere to avoid natural corrections (the downs), we don’t have a free market. Every time something is less than ideal, we turn to government to fix it. It’s a shame, and I’m afraid it’s not going to end well.

    Thanks for your comment.

  • sbf said:

    Kevin, I hear ya! We’re on the same page.

  • jimbo jenkins said:

    So if obama wins, what country would you recommend we move to? Something exotic like the BVIs sounds appealing to me

  • hank said:

    First off, I don’t think it is a shameful post at all. You’re stating what you’ve read and putting your spin on it, on your own blog. No problems there. As far as the issue described, I don’t know if it is as dire as you make it out even with a Democratic controlled Congress. I certainly think that things are going to change, they always do, but thinking we’re going towards Socialism might be overstating. Yea, I’ve heard a lot of rhetoric around the blogosphere/news sites about it, but that’s a pretty large fundamental change involved as well.

  • kevin duffey said:

    I hope you’re right Hank. I really do.

  • john q public said:

    if you think this will happen, you’re effing crazy

  • kevin duffey said:

    Maybe it won’t happen. But, to dismiss it so quickly as “not gonna happen”, I would say that you would be “effing crazy”.

  • William Pinn said:

    “Reports have surfaced in recent days over House Democrat attempts to make significant changes to 401(k) plans in our country.”

    Evidence? Links? The link you provided was Scottrade’s homepage. I was hoping to read a quote from a democrat confirming your charge that they want to federalize our retirement funds.

  • kevin duffey said:

    There is a bunch of information out there. George Miller and Jim McDermott are the main Democrats behind this.

    Here are more links:



  • William Pinn said:

    “I want to stop the federal subsidy of 401(k)s,” Ms. Ghilarducci said in an interview. “401(k)s can continue to exist, but they won’t have the benefit of the subsidy of the tax break.”

    From what I gather, they want to end tax breaks, but I so far have not found any quotes that articulate a total takeover of 401K’s. If that is the plan, it is hard to believe that Warren Buffet would endorce Obama if the plan is communism. Such a plan would destroy our economy.


    So are these dems really that stupid and willing to commit political suicide, or could this be political spin? A lot of democrats own stocks outsite of 401K’s. Are they really willing to lose all their wealth?

    Let’s assume they are. They have to get the plan passed in the house, then the senate. They don’t have a supermajority, so I would expect a republican filibuster. The dems did it when they were the minority.

    This era reminds me of when the dems had majority back in the early 90’s. They wanted so badly to pass universal healthcare. No dice.

  • MightyMax said:

    This quote here
    "I want to stop the federal subsidy of 401(k)s," Ms. Ghilarducci said in an interview. "401(k)s can continue to exist, but they won't have the benefit of the subsidy of the tax break."

    Mara Liasson was on Special report the other night and they were talking about HSAs/FSAs (the savings accounts for medical bills that are done pre-tax)
    It amazes me the amount of people on the left that think that when you contribute to savings accounts that are pre-tax (your own money), they view this as a program that is government subusidized….
    Very sad, and totally wrong.

  • MightyMax said:

    This is the transcript from the Special Report segment. http://www.foxnews.com/on-air/special-report/tran

  • pete micus said:

    “The court ruled local governments can use eminent domain to take property from one private entity and give it to another private entity if it’s in the public interest.”


    Without question the Supreme Court has shown a willingness to expand the definition of “public interest”.

    Unless the people express their protest, 401k seizure will be “in the public interest”. The precedent is there already.

  • William Pinn said:

    You don’t have the whole picture. First, the government can’t take your property without just compensation, so the government would essentially gain nothing by taking your 401k. Secondly, such a taking would trigger thousands of class action suits under the cause of action of inverse condemnation. The government would experience a net loss of billions in legal fees and settlements alone.

    Thirdly, such a taking would be the surest way to commit political suicide and destroy the economy beyond recognition. The political party responsible will be finished.

    Most likely taxes will be increased and public benefits will be cut. The government can’t be sued for doing those.

  • kevin duffey said:

    You think public benefits under Obama will be cut? I whole-heartedly disagree. I think we will see them expanded unlike ever before.

    I don’t think the government will take our 401k without paying for it, they will pay for it. but then they will control it adding another area of our lives to be under government control.

  • ticktalk said:

    Bro, the government already controls your 401k. They do it by requiring all investments be routed through the exchanges and by limiting our investments choices to issues belonging to the same.

    Have you ever wanted to retire to a beach house, cabin in the woods, quaint country cottage/farm or yacht for a retirement on the sea? You can’t invest in those through your qualified accounts.

    How about food reserves juse in case another Great Depression happens while you are in retirement and not physically able to cultivate crops? Nope, can’t invest in those either.

    What about actual precious metals (not instruments that represent them)? Not even digital gold currency can be held in qualified accounts.

    The list of unqualified assets goes on and on.

    Summom Bonum: If the new administration wants to appoint controllers over retirement accounts, it will be with the express purpose of preventing a citizen from liquidating while the market collapses. As a zero sum game, someone has to be the loser.

  • j burrow said:

    I could not believe what I just read. These dumb demos think we are STUPID.

    Heck, they screwed up Social Security so badly and now they want us to trust them with our money AGAIN????????????? I say HELL NO. I can manage my money with out your help Ms. Nazi Pelosi! Wait… maybe, I can capitalize on Mr Obama's SPREAD THE WEALTH around, quit my job and let the new United States of Socialists take care of me/us! Flippin idiots really believe the American people will stand by and let them take our money from us by jump starting the new system with $600.00/ incentitive to every working individual and then take tens of thousands of dollars from us? Heck, that is a pretty good return on their $600.00 investment! GO TO devil Congress and Mr B. O.! Things are being to SMELL!

  • Nate said:

    So what is a person saving for the future to do?

    The world is filled with risks. The risk of 401k seizure or the government removing the tax breaks is real, but how big is it? How do we deal with these risks?

    I have thought about stopping contributions and instead paying taxes on my earnings now (instead of later), while investing in tax-efficient things (index funds, etf’s, long-term buy-and-hold investments like real estate, gold, Berkshire Hathaway, etc.).

    No one knows where capital gains and dividend tax rates will be in the future but currently and historically they have been lower than the rate of taxes on earned income. When you start withdrawing money from an IRA in retirement, you’ll probably be paying very high rates on that income, including the nominal gains on assets due to inflation – a double whammy of “hidden” inflation tax and income taxes.

    In the long run, because of inflation (which will increase the nominal — not real — value of account balances), rising tax rates and the possibility government changing the rules (for example, phasing out tax deductions for retirement accounts), plus the disadvantages of 401k’s and IRA’s (limited investment choices, many strings attached), there is probably minimal net benefit to contributing to these types of accounts vs. just investing the money in tax-efficient vehicles that you have complete control over.

    The only exception I would make is I would contribute just enough to get my employer’s 401k match. Perhaps to hedge my bets I’ll also contribute to a Roth IRA.

  • Denise Tyson Miller said:

    If you care about freedom, vote in the next 22 days!

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