One of the most severe attacks on wealth is currently underway and sadly most Americans are oblivious to the threat. This threat is very real and it could wipe out your future retirement dreams.
The attack has grown in intensity over the last few years and those who originally doubted my assessment of the situation no longer do so.
The guys in Washington are getting desperate.
For years, our government has relied on the major Asian players like China and Japan to finance our debt. I’m sure you’ve heard this story. We bought their stuff, and they bought our Treasuries and other U.S. paper.
This system worked out great for us.
Today, that’s no longer the case. We’re the biggest financial losers on earth... Our national debt is a staggering $16 trillion! Worse, foreign investors don’t trust us to pay it down – so they’ve cut off our cash flow.
In short, the government needs Treasury buyers. So the guys in Washington are turning to you... and your cash-rich retirement plan to buy up those unwanted Treasuries.
Another Social Security?
The Department of Labor and U.S, Treasury Department are looking into ways to promote the conversion of retirement plans into an “annuity payment.”
But here’s what you need to know: An “annuity payment” is really government speak for forcing you (think: mandatory Social Security contributions) to buy U.S. Treasuries with your retirement plans.
And most likely, the government wants to lock you into those low-yielding 30-year Treasuries that foreign investors no longer want. That way, they can finance a mountain of deficits for decades to come.
Imagine that 100% of your retirement is tied to the dollar, a declining asset and backed by a practically worthless government IOU. It’s the last asset you’d want to own for your retirement.
What’s more, the timing coincides with the beginning of the retirement of the Baby Boomers. Think about it, beginning this year the first wave of the 76 million Baby Boomers will begin turning 65 and there will be a ton of money flowing into treasuries each year for the foreseeable future.
Make no mistake about it, Uncle Sam wants your retirement plan – and there’s really only one thing you can do to protect yourself – get your retirement plan offshore while you still can. They are coming for it and you are running out of time.
Uncle Sam Will Tell You When You Can Take Your Own Money
(And they won’t let you take it all at once)
A major step towards the forced purchase of treasuries will come through a fundamental change in the way you take the money out of your retirement plan.
Federal lawmakers want to remove all of the flexible withdrawal options you have. They want to force you to withdraw money in equal payments over your remaining life span, known in the industry as a lifetime annuity.
An annuity is a steady stream of income that will be paid to the retiree over the remainder of his or her life expectancy. A 67-year-old male would receive his payments over a 15-year period. Contrast this with the rules in place today, which give you the ability to withdraw all of the funds lump sum or as needed after reaching age 59 ½. (The current rules require mandatory distributions begin by age 70 ½.)
Already in the short time since I wrote my first draft of this article a new salvo has been fired on the attack calling for a “Universal Private Retirement System” and a lifetime annuity.
Sen Harkin is at it again! He just launched a proposal for what he is calling, "universal private retirement system". There are a lot of bad things about it, but the worst is the call for lifetime annuity payments at retirement. I keep telling everyone who will listen, this means your retirement plan will go 100% into T-Bonds and be paid out over your remaining estimated life span. I am not the only one who thinks this is a bad idea- Ms. Friedman of the Pension Rights Center said: “Money pooled and professionally invested, with an annuity at retirement, and the risks spread around — that's all the stuff that's gone wrong with 401(k) plans.”
What is the Ultimate Game Plan?
I will guarantee that the government's solution for funding an annuity is to have all of your retirement assets purchase treasuries with maturities matched to the payment stream!
They have been looking for a way to force your retirement assets into treasuries and this is the first step.
My guess is rather than forcing everyone to buy treasuries today, which would start a political firestorm, once you reach retirement age they will force you to buy treasuries and the lifetime income stream will start. Once retirees become accustomed to the new lifetime income stream, it will be an easier transition for the government to eventually require retirees to invest in treasuries as the only allowable investment for retirement plans.
Teresa Ghilarducci Wants You To Share The Wealth Through Mandatory Redistribution
They aren’t stopping there though. Our good friend Teresa Ghilarducci is back and she has a plan to help redistribute your wealth. I have been reporting on this part of her strategy, as well as others that are equally frightening for several years.
A Pensions & Investments article previously referenced, Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School, New York, said: “I would roll back the cap to about $5,000 and then redistribute the savings to workers without pensions in the form of a tax credit of $600, and that would be revenue neutral. It would be a lot fairer and would expand pensions to more than 60 million people who currently don't have pensions.”
The Brookings Institute Wants to Help Teresa Ghilarducci Redistribute Your Wealth
The Brookings Institute issued a report last September- RETHINKING INCENTIVES TO SAVE FOR A SECURE RETIREMENT, it had a number of ideas that seem to be the latest in the trend on taking over your pension plan. It included automatic IRA's. They feel most Americans are not smart enough to save for retirement and should be forced into it. They also want to change the way tax deductions work so “the wealthy” will end up with a reduced or even eliminated tax break for deductions. Here is my favorite quote from their report.
“A proposal such as Bill's, combined with automatic enrollment, automatic escalation and the auto IRA will put us in a situation where we can start to even out the distribution of wealth.”
The DOL’s Attack On Retirement Plans Kick’s Into High Gear!-
A recent report appearing in “AdvisorOne” mentioned the Department of Labor’s Employee Benefits Security Administration (EBSA) went after retirement plans last year in a BIG way. Almost $1.4 BILLION in fines were issued in over 3,000 civil cases. The attack by DOL resulted in over 300 criminal cases. This resulted in more than 120 indictments of which 75 cases ended in convictions or guilty pleas.
More than 3,000 plans were audited in 2010, which resulted in over 70% of them being required to restore losses or take other corrective measures.
These figures don’t even take into consideration the economic cost to the companies and individuals who doubtless spent a tremendous amount of money on legal fees defending themselves. And if you think this was a one-time occurrence think again. The DOL is planning on ramping up their enforcement staff for this year.
The majority of these cases resulted from what the EBSA is calling Fiduciary negligence and non-compliance with fiduciary responsibilities. Guess what, it is going to get worse and I mean a lot worse. I have been writing about new rules designed to broaden fiduciary responsibilities and to bring many financial advisors and brokers under the same umbrella. Wall Street has fought for years to prevent brokers and advisors from being labeled fiduciaries but now the battle is over.
The DOL is set to reissue its new definition of fiduciary and fiduciary responsibilities in April. One of the more controversial aspects of the first round of proposed changes was to bring IRA’s under the same umbrella. That means brokers and other advisors will fall under the same rules that resulted in so many fines and criminal cases for the pension plan world. There are a heck of a lot of IRA’s giving the DOL a much bigger playing field. In the meantime they are working on a blanket exemption to the prohibited transactions rule that would give IRA Advisors some relief but only if they dumb down their advice and carefully meet certain disclosure rules.
There is another arm to this attack and that is the new disclosure rules that kick in. Please refer to my previous articles for background information on this topic. Here it is in a nutshell. For years participants in company sponsored retirement plans have been getting ripped off and they have no idea! There have been hidden fees, kickbacks, revenue sharing and all kinds of sweetheart deals going on in retirement plans with complete impunity. The fact of the matter is many plans sponsors and trustees really have no idea just how much their plan is costing them and their participants. That is all about to change with the new fee disclosure rules that kick in this year. [408(b)(2)]
I think fee disclosures and transparency are a great thing and I have been calling for it for years, but I can also see this leading to a lot more lawsuits and significant fines for the retirement plan world.
Today the rules allow for a self-directed option in your retirement plan. Many small business owners take advantage of these options because it gives them maximum investment flexibility, and the horrible market performance of the last few years has only caused their popularity to grow. Unfortunately most retirement plans currently being offered by large companies do not contain this option even though there are NO RULES preventing them from doing so.
Why are self-direct accounts popular? First of all it is up to you and you alone how the funds are invested, (keeping within the rules governing prohibited transactions of course). This becomes important when the participants, like yourselves, want to decide how their money should be invested. Maybe he or she wants a self-directed brokerage account because they trade their own investments and do a much better job than Wall Street. Or they may want to own real estate, precious metals, tax-lien certificates or any of the other so called non-traditional assets.
The new attack on retirement plans will be another BIG step towards putting a stop to self-directing your retirement plan and/or being able to move it offshore.
August 31st Is The Deadline-May Newsletter
There is a new fee disclosure rule starting in August I have previously discussed. I like it because it is going to force transparency in what plans are paying for fees and ultimately it will tell you what fees are being charged to your retirement plan. Trust me, many of you are in for a rude awakening.
But now out of the blue just a few short months before implementation the DOL has issued some new guidance that has taken everyone in the industry by surprise. An industry insider said that the new guidance came out of left field. Another insider said the DOL guidance was breaking new ground in areas that had never been discussed. It will cause more paperwork, higher costs, more confusion and a greater level of fiduciary responsibility for plan sponsors.
A greater level of fiduciary responsibility is important as you will see in a moment. It costs more to implement and follow and it adds a lot more risk to the fiduciary. Referring back to my March newsletter, there were 1.4 billion in fines and over 120 indictments in 2010. Do you think plan sponsors and fiduciaries want to do anything that is going to add to their liability and complexity, or do you think they are looking for ways to simplify things and minimize their potential problems.
A senior consultant in the retirement plan universe said “This is a nightmare,”. A client who had been looking to add a self-directed brokerage account to their plan was told by its” ERISA counsel to “seriously reconsider”. Another of the consultant's clients is pressing ahead to add the option in July.
It doesn’t take a rocket scientist to see what these two attacks will lead to.
More attacks on retirement plans!
More criminal cases!
More fines collected by the DOL!
Brokers, and other advisors facing the threat of fines and indictments!
This will undoubtedly lead to some advisors leaving the market and no longer servicing IRA’s or retirement plans.
Some companies will no longer handle IRA’s or pension plans preferring not to act as custodians.
Those that do will significantly limit YOUR investment choices.
An Equally Big Problem Most Investors Are Not Aware Of-
The Lost Decade Has Wiped Out Retirement Dreams For Millions
I know it might seem a bit far-fetched but that’s what is happening to your retirement plan. For the last 10 years investors have either lost money in their IRA’s and retirement plans or made nothing. It is being called the lost decade and yet many investors still are doing nothing about it. They sit paralyzed or worse believe the lie their traditional advisors and Wall Street feed them. How many times have I heard things like, “You need a long-term perspective, it will be different this time, just hang in there it is bound to come back, this it the year it is going to turn around”, and on and on and on…..
Let me tell you we are in really perilous times and I am frightened by the complacency I see around me. I don’t know if everyone is just numb after so many years of a difficult economy and a bad market or if they have been lulled to sleep, meanwhile their retirement plans are being sucked into a black hole .
The Global Economy Continues to Slow-
The evidence is mounting that the global economy is slowing, not growing. By now we are all familiar with the turmoil in the Euro-zone. The debate rages as to whether Greece will leave the euro or will stay threatening the entire system. It almost doesn't matter anymore as it is clear Europe is in for some very tough times as it tries to get its economic house in order. And now the evidence continues to mount China is also experiencing a slowdown. There also seems to be ample evidence the U.S. “recovery” (if there ever was one), has reversed direction and may also be headed back towards the abyss.
What does this all mean for you the retirement plan investor?
Does anybody really know the right currency to hold or where to invest their money anymore? In times like these it is critically important to have diversification and this diversification should extend beyond what you normally might consider. In this environment you want to hold multiple currencies and even more importantly you want these assets held in multiple global accounts. Finally, I believe you may want to consider exposure to non-traditional assets like real estate, precious metals and alternative investments that are not as highly correlated to the traditional market.
Currency Wars Have Kicked Into Gear and Your Wealth Is At Risk
A famous author once said, “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought,……..”. I have repeatedly been trying to raise the alarm about the crisis in Europe, which threatens to destroy the euro and now we have a new coordinated attack on the dollar at the same time. Russia and Iran have signed an agreement stating they will no longer trade in dollars when doing business with each other. China and Japan just did the same thing indicating they will do business with each other in their own currencies and not use the dollar.
Traditional Long Only Investments Are Very Risky In This Market
You just don’t want to be in traditional long only investments in a market that has this much risk. You need to give serious consideration to holding non-traditional investment like precious metals; real estate, timber and other assets that can help you avoid the risk of a total meltdown.
Complacency Can Kill You- Feb.
I really hope you are not sitting there thinking none of this matters because it does. The worlds financial system is getting sucked into a black hole and it might seem like you have a long time to act but remember it will suddenly happen much faster than you think.
I have had prospective clients over the years who have asked me to call them when I think it is time to get their retirement plans offshore. I think it is kind of cute really, evoking an image of the school bell ringing when recess is over and it is time to run back to class.