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No Government 401(k) Takeover
Posted on December 11, 2012
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Q: Is the Obama administration attempting to eliminate private 401(k)s and IRAs and create a “national retirement system”?
A: No. Obama endorses a proposal that would require businesses without retirement plans to establish private IRAs for their employees and deposit a percentage of wages into the accounts. Employees could opt out.
FULL QUESTION
I have started seeing postings on Facebook and other web sites referring to ”recent hearings” sponsored by the Labor Department and Treasury Department. The hearings are being referred to as “the beginning of the Obama administration’s effort to nationalize the nation’s pension system and to eliminate private retirement accounts…” The whole thing sounds bogus, and I have been unable to find anything to support the claim other than those sites making the claim.
One site claiming this, National Seniors Council, appears to be basing the entire claim on the testimony of some of the groups and individuals, which seems weak at best.
What are the real facts?
FULL ANSWER
Our inbox was recently flooded by emails referring to this 2010 article from the National Seniors Council, titled “Obama Begins Push for New National Retirement System.” The NSC calls itself a “national conservative senior citizens organization.” It advocates for limited government and against President Obama, claiming that the administration has a “big-government anti-seniors agenda” and that “Social Security and Medicare are both on the chopping block in order to pay for the liberals’ welfare programs and bailouts.” It’s also a committee of the National Grassroots Advocacy, a 501(c)4 founded in 2009 that advocates for the repeal of the president’s health care law.
The group drew attention to its two-year-old article in a “Director’s report” posted in November after the election. It stated: “In the coming months and years there will be huge battles over ObamaCare, Social Security, and even Obama’s dream of establishing a new ‘national retirement system.’ ” However, the group’s 2010 article is an opinion piece full of misleading information and misguided speculation. The administration hasn’t proposed any “national retirement system.”
The article focuses on a September 2010 joint hearing of the Department of Labor and the Treasury. NSC National Director Robert Crone acknowledges in the article that the hearing “was set up to explore why Americans are not saving as much for their retirement as they could,” but he goes on to claim, without any evidence, that “it is clear that this is the first step towards a government takeover.” The article also mentions the Automatic IRA Act. Crone claims that if the bill passed, “the government will be just one step away from being able to confiscate all these retirement accounts.” He goes on to say that the government would ultimately “redistribute the wealth of America’s older citizens.” But the Automatic IRA legislation doesn’t call for any sort of “government takeover” of retirement accounts, nor is there evidence of a sinister plan to redistribute seniors’ retirement dollars.
Instead, the legislation is a long-standing proposal that was originally developed in 2006 by David C. John, senior research fellow in retirement security and financial institutions at the conservative Heritage Foundation, and J. Mark Iwry, then of the Brookings Institution and now with the Treasury Department. The bill aims to expand retirement savings among Americans. It would require businesses that don’t have retirement plans to establish private, employer-sponsored IRA plans and automatically deposit contributions from employees, unless employees opt out.
John told us that it “would not make it any easier for a government to confiscate retirement savings.” He said that currently only about half of the U.S. workforce is able to contribute to retirement funds with payroll deductions. The bill would increase that to about 90 percent.
As for the 2010 hearing on retirement options, the NSC focused on one speaker, Rebecca Davis, of a consumer advocacy group, who called for additional government assistance in retirement funding for lower-income workers. But Iwry, now senior advisor to the Secretary of the Treasury, opened the hearing by stating that the meeting was “in the context of the department’s support for the private pension system.”
Readers also have sent us a World Net Daily article by Jerome Corsi titled “Now Obama Wants your 401(k).” Corsi was the author of a 2008 book, “The Obama Nation,” which was critical of then-presidential candidate Obama and, we found in fact-checking it, “a mishmash of unsupported conjecture, half-truths, logical fallacies and outright falsehoods.” Corsi’s article for the WND claims that Obama, with help from the Departments of Treasury and Labor, is “eyeing the opportunity to redistribute private retirement savings to less affluent Americans and to force the retirement savings out of the private market and into government-controlled programs investing in government-issued debt.” Corsi cites the same things the NSC does — the 2010 joint hearing and the Automatic IRA bill.
Automatic IRA
In the President’s Budget for Fiscal Year 2013 (page 147), the administration endorses an Automatic IRA proposal that would require businesses without retirement plans to establish employer-sponsored IRA plans. In the House, Democratic Rep. Richard Neal of Massachusetts introduced the most recent version of the bill on Feb. 16, 2012. No action has been taken on the bill since March, when it was referred to the House Subcommittee on Health, Employment, Labor, and Pensions. The bill would require employers to automatically enroll employees in an IRA by directly depositing 3 percent of wages into the fund. Employees may opt out of the IRA at any time, and the program would be strictly voluntary. Businesses with 10 or fewer workers would be exempt.
Corresponding legislation in the Senate, the Automatic IRA Act of 2011, was introduced in September 2011 by Democratic Sens. John Kerry and Jeff Bingaman. It was promptly referred to committee, and no action has been taken since. Neal and Bingaman had previously introduced the same legislation in 2010. The legislation was also introduced back in 2006 and 2007. None of those bills has come to a vote — they all have died in committee.
The Labor Department’s Phyllis C. Borzi, an assistant secretary for the Employee Benefits Security Administration, testified on the latest legislation before the Senate Special Committee on Aging on March 7, 2012.
Phyllis C. Borzi, March 7, 2012: Under the budget proposal, the Administration projects that the new system of automatic workplace pensions will expand access to tens of millions of workers who currently lack pensions. Coverage will be expanded by requiring employers who do not currently offer a retirement plan to enroll their employees in a direct-deposit IRA account compatible with existing direct-deposit payroll systems. Employees would be permitted to opt-out if they choose. Employers with ten or fewer employees and employers in existence for less than two years would be exempt. Employers with fewer than 100 employees who set up these arrangements would be eligible for temporary business tax credits.
The Heritage Foundation’s John, who developed the original Automatic IRA proposal, told us that the Automatic IRAs “would be invested using private sector providers chosen by the employer.” As for government’s role, John said it would be “limited to requiring businesses with more than 10 employees (below that would be exempt) that don’t offer their employees any other type of pension or retirement savings account to offer their employees [the] opportunity to save for retirement with an Automatic IRA. It would also provide guidance about the types of investments allowed and help employers to connect with a private sector investment manager.”
There’s also the possibility that Treasury bonds could be used initially for “first-time savers.”
John, Dec. 4, 2012: There could be an R-Bond account at Treasury for first-time savers, but that money would be rolled into private sector accounts once the individual accounts reached a certain size. The R-Bond is designed to enable small savers to build up a balance up to $5,000 without any administrative fees. It has the support of many private financials, and private sector managers could substitute a private sector alternative if they wished.
On April 17, 2012, John testified on the same topic before the House Ways and Means Committee. He approved of the legislation, saying that it was “not a partisan or ideological proposal.”
John, April 17, 2012: This is not a partisan or ideological proposal. In 2008, the Automatic IRA won the endorsement of both the Obama and McCain campaigns, and it has continued to enjoy support from all sides of the ideological spectrum. Earlier this year, Rep. Richard Neal of the committee introduced HR 4049, the Automatic IRA Act of 2012. While the Heritage Foundation as a 501(C)3 nonprofit does not and cannot endorse any legislation, let me say that the policy contained in his bill would significantly improve our retirement savings system.
John went on to say that the proposal wouldn’t result in large costs to businesses. “For employers, offering an Automatic IRA would involve little or no cost or regulatory burden. The employer would not be maintaining a retirement plan, and employer contributions would be neither required nor permitted.”
According to John’s testimony, tax credits would cover any costs to employers. The White House Budget for 2013 says employers could receive tax credits of up to $250 per year for six years to cover costs, and that the administration’s budget would double the current tax credit for small employers offering retirement plans for the next four years (from $500 to $1,000 per year).
Labor Department Hearings
The 2010 National Seniors Council article also focuses on a joint hearing of the Departments of Treasury and Labor that, according to the group, “marked the beginning of the Obama Administration’s effort to nationalize the nation’s pension system and to eliminate private retirement accounts including IRA’s and 401k plans.”
But the hearing, which took place September 14 and 15, 2010, didn’t focus on eliminating private retirement accounts. In fact, Iwry, senior advisor to the secretary of the Treasury and deputy assistant Treasury secretary for retirement and health policy, said at the hearing that it was “in the context of the department’s support for the private pension system and especially for employer sponsored retirement plans, both defined benefit and defined contribution.” Its purpose was to discuss lifetime retirement payment options for seniors.
The various speakers included many from private companies and investment firms. But the NSC focuses on the testimony of one person — Rebecca Davis of the Pension Rights Center, a consumer advocacy group. Davis called for a “government sponsored program” to help low-income individuals buy annuities.
Rebecca Davis, Sept. 14, 2010: Private annuities are problematic, primarily because of their high cost and the negligible monthly benefits that small account balances can purchase. For these reasons, an annuity option within a 401k for participants with low balances would not be a realistic choice for most low and moderate income participants. Yet these are the individuals most in need of lifetime income in retirement. Therefore, we suggest that serious consideration be given to the concept of establishing a government sponsored program, ideally administered by the [Pension Benefit Guarantee Corporation] where participants with low account balances could purchase low cost annuities.
But that’s simply Davis’ opinion, offered among many in two days of hearings. Iwry made clear that the hearing “does not reflect any intention to require a purchase of annuities or any other particular investment.” He said the discussion was about choices. “We’re here to consider whether and how we might increase people’s choices, not limit them.”
John, of the Heritage Foundation, confirmed that the hearing “focused totally on products offered through the private sector.” We asked if he had seen any other effort by the Obama administration to create a “national retirement system” that could lead to the government confiscating accounts, as the National Seniors Council claims. John responded: “I have seen no indication that this is an Obama administration goal.”
– Jesse DuBois
