President Obama

A key labor union ally of the Obama administration has mounted an effort to create government-mandated worker retirement accounts as an entitlement program, with the possibility that a portion of all private retirement funds could be forced into U.S. Treasury debt.

Branding the program “Retirement USA,” the Service Employee International Union, or SEIU, has joined with the AFL-CIO, the Economic Policy Institute, a Washington-based economic left-leaning think tank that receives substantial labor funding and two other left-leaning interest groups, the Pension Rights Center and the National Committee to Preserve Social Security.

Retirement USA promotes the concept that all workers in the U.S. have a right to a government account that would fund a secure retirement in addition to Social Security and private workplace programs such as the 401(k).

“Our goal is to involve all workers and all employees in a government-mandated retirement program, with the government putting up the difference for lower-paid employees,” Nancy Hwa, a spokewoman for the participating Pension Rights Center, told WND.

Retirement USA would require by law employers and employees to contribute to 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.

“Retirement USA is basically an effort that amounts to nationalizing 401(k)s and IRAs,” David John, a senior research fellow at the Heritage Foundation told WND.

Heritage has championed “Automatic IRAs,” a fundamentally different idea that would automatically enroll employees in Employee Retirement Income Security Act, or ERISA, retirement accounts, including 401(k) programs, to increase voluntary employee participation.

John told WND that Heritage is strongly opposed to any effort to create government-mandated workplace retirement programs and to any attempt to force ERISA fund contributors by federal law or regulation to invest in U.S. Treasuries.

Under the guise of making workplace retirement savings accounts available to all Americans and insuring that existing retirement savings accounts pay lifetime income, the SEIU-led Retirement USA effort is quietly exploring strategies that would create “Universal IRAs” or “Guaranteed Retirement Accounts” for all workers.

Hwa told WND that Retirement USA is at a preliminary stage of defining its principles and that no specifics had been developed on how precisely the government-mandated retirement account would work.

She also said the Obama administration had not yet signed onto the effort, although she acknowledged Retirement USA would be pleased to have the Obama administration’s endorsement.

The White House did not respond to a WND request for comment. SEIU also did not reply.

What is the underlying agenda?

Labor unions see advantages in creating a new class of workplace retirement programs as an entitlement.

“The idea is a form of a government-managed, government-mandated third pillar of workplace retirement savings,” John told WND.

The third pillar of the Retirement USA plan would be added to the first pillar of Social Security and the second pillar of voluntary participatory ERISA private pensions programs such as 401(k)s and IRAs.

Moreover, with the Obama administration needing to raise nearly $1.5 trillion just to cover this year’s anticipated federal budget deficit, and with the Federal Reserve discontinuing efforts to purchase U.S. Treasury debt, the Obama administration is looking at 401(k) and IRA accounts as trillions of dollars that could be forced into Treasury bonds to finance the federal budget deficits.

Given that the Federal Reserve has now phased out its direct purchases of Treasury debt, the Obama administration is anxious to find another market upon which to unload hundreds of billions of dollars of Treasury bonds carrying yields much lower than would be required if they were sold in the open market.

New IRS rules being contemplated

In its appeal for government-mandated retirement accounts, the Retirement USA website attacks Social Security as insufficient for retirement, charging “Social Security benefits for the average retiree are $13,922 a year, less than the income of a full-time minimum-wage worker.”

According to Retirement USA, the Universal IRA would require government to subsidize the contributions of lower-income workers, suggesting a new entitlement program in which workers and employers would contribute a specified percentage of pay.

WND previously reported Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Mark Iwry have launched a public comment period before implementing regulations that could require private investors to structure IRA and 401(k) accounts into U.S. Treasury debt-backed government annuities.

Mutual fund industry pushes back

Not surprisingly, the U.S. Treasury and Department of Labor are getting serious pushback from the mutual fund industry objecting to what some financial planners see as a government attempt to divert hundreds of billions of dollars of private retirement accounts into federal government debt, regardless of whether the investment in Treasury bonds is in the best investment interests of the retirement-oriented investor.

The Investment Company Institute, a national trade organization representing the mutual fund industry, argues that the distinction of the Obama administration proposal would be to require annuities funded with Treasuries to be embedded within IRAs and 401(k) programs, using the fear of loss as a reason to demand retirement investors own Treasuries.

Currently, IRA holders and investors in 401(k) plans are free to invest in Treasury bonds if they choose.

Also, annuities are a popular settlement option for IRAs and 401(k) plans that transition from the accumulation phase to the payout phase.

Annuities are an attractive payout instrument because they offer part of lifetime income and only a portion of each payout installment is considered taxable as return of investment principle.

Interest or investment earnings in annuities accumulate income tax deferred until the annuitant takes out money, either in an unscheduled withdrawal, in a payout option extending over a specified number of years in retirement or for the lifetime of the annuitant.

A survey conducted by the Investment Company Institute showed more than 70 percent of all households disagreed with the idea of requiring retirees to buy annuities with a portion of their assets, whether the annuity is offered by an insurance company or by the government.

Moreover, 96 percent of households in the Investment Company Institute survey responded that retirees rejected the idea that the government should mandate turning IRA or 401(k) assets into annuities, asserting instead that retirees should make their own decisions about managing retirement assets and income.

The Investment Company Institute member companies manage some $11.62 trillion in mutual fund assets for some 90 million mutual fund shareholders, including retirement-oriented investors participating in defined contribution plans such as employer-sponsored 401(k) accounts.

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