Steve Doocy and Newt Gingrich falsely claimed that the Obama administration is considering "a scheme" to "abolish 401(k)s" and "migrate Americans to a government-run program so the politicians would then have your money." In fact, the administration has not proposed moving retirement savings to a government-run system -- it is considering ways to promote annuities sold on the private market as a voluntary alternative to lump-sum cash payments in retirement.
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Doocy and Gingrich claim Obama is pushing a "scheme" to take over "all the money you've saved your whole life"
Gingrich: "This is really a secular socialist machine that wants to take over your life." On the April 6 edition of Fox News' Fox & Friends, co-host Steve Doocy stated, "There was a Business Week report that said the Treasury and Labor department asking for public comment on a scheme it sounds like to convert 401(k)s and IRAs, it sounds like into some sort of retirement thing where you give the money to the government, all the money you've saved your whole life, and then they will dole it out over a period of time. What's up with that?" Gingrich stated, "I think this it's a very dangerous idea. This is really a secular socialist machine that wants to take over your life." Gingrich added: "[T]hey want to take it over in terms of a proposal that they would, in effect, over time, abolish 401(k)s, migrate Americans to a government-run program so that the politicians would then have your money." An on-screen graphic during the segment stated: "Protecting your savings: Your 401K and IRA confiscated for govt. debt?"
Administration considering effort to encourage participation in private-market annuities, not take over retirement savings
Business Week: "Retiree Annuities May Be Promoted by Obama Aides [emphasis added]." A January 8 Business Week article headlined "Retiree annuities may be promoted by Obama aides" reported, "The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged." The article continued:
The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.
Annuities generally guarantee income until the retiree's death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.
Promoting annuities may benefit companies that provide them through employers, including ING Groep NV (INGA:NA) and Prudential Financial Inc. (PRU), or sell them directly to individuals, such as American International Group Inc. (AIG), the insurer that has received $182.3 billion in government aid.
At no point did the article -- which Doocy cited -- suggest that the administration was looking to force retirees to purchase annuities, or that the government would manage annuities on behalf of retirees. The article reported:
"The question is how to encourage it, and whether the government can and should be helpful in that regard," Iwry said.
While traditional defined-benefit pensions were paid out as annuities, providing monthly payments for retirees and often their spouses, workers increasingly are taking advantage of options to receive lump-sum distributions.
Retirement plans, including 401(k) accounts, held $3.6 trillion in assets at the end of the second quarter of 2009, while annuity investments of all kinds totaled about $2.3 trillion, according to figures from the Washington-based Investment Company Institute, a trade association for asset managers.
The top sellers of individual annuities in the U.S. include AIG, MetLife Inc. (MET), Hartford Financial Services Group Inc. (HIG), Lincoln National Corp. (LNC) and New York Life Insurance Co., according to figures from the American Council of Life Insurers for 2008. The top group-annuity sellers include ING, Prudential Financial, MetLife and Manulife Financial Corp.
Labor and Treasury considering encouraging private annuities as an option for distribution of 401(k) savings, not giving government control over retirement. In a Request for Information, the Department of Labor's Employee Benefits Security Administration and the Treasury Department sought comments on how the administration could -- and whether the administration should -- "facilitate access to, and use of, lifetime income or other arrangements designed to provide a stream of income after retirement," citing studies showing that few retirees have access to or take advantage of retirement options that provide a steady stream of income rather than a single, lump sum of cash. From the administration's Request for Information:
While defined contribution plans have some strengths relative to defined benefit plans, participants in defined contribution plans bear the investment risk because there is no promise by the employer as to the adequacy of the account balance that will be available or the income stream that can be provided after retirement. Moreover, while defined benefit plans are generally required to make annuities available to participants at retirement, 401(k) and other defined contribution plans typically make only lump sums available. Furthermore, many traditional defined benefit plans have converted to lump sum-based hybrid plans, such as cash balance or pension equity plans, and many others have simply added lump sum options. Accordingly, with the continuing trend away from traditional defined benefit plans to 401(k) defined contribution plans and hybrid plans, including the associated trend away from annuities toward lump sum distributions, employees are not only increasingly responsible for the adequacy of their savings at the time of retirement, but also for ensuring that their savings last throughout their retirement years and, in many cases, the remaining lifetimes of their spouses and dependents.
In recognition of the foregoing, the Agencies are considering whether it would be appropriate for them to take future steps to facilitate access to, and use of, lifetime income or other arrangements designed to provide a stream of income after retirement. This includes a review of existing regulations and other guidance and consideration of whether any such steps would enhance the retirement security of participants in retirement plans, taking into account potential effects on and tradeoffs involving other policy objectives. To that end, this request for information (RFI) sets forth a number of questions that are generally organized into categories under which the Agencies may be able to provide additional guidance if appropriate. This RFI also includes a number of questions pertaining to the economic impact of rulemaking, and to impediments beyond the statutory requirements, if any. Commenters are not limited to these questions and are invited to respond to all or any subset of the questions, but the Agencies request that commenters relate their responses to specific questions when possible.
New York Times' Lieber: "If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won't." In his New York Times "Your Money" column, Ron Lieber discussed efforts to promote annuities for retirees and stated, "The basic annuity is almost certainly underused. Sure, you may be able to arrange a better income stream on your own, but not without a lot of help from a financial planner or a lot of time managing it yourself. Then there's the possibility, however small, that you'll spend too much in spite of yourself or run into a once-in-a-generation market event that will cause you to run out of money sooner than you expected." From Lieber's January 29 column:
At its simplest, which is how the White House seems to want to keep it, an annuity is something you buy with a large pile of cash in exchange for a monthly check for the rest of your life.
If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won't. In effect, it allows you to buy the pension that your employer has probably stopped offering, and it can help pick up where Social Security leaves off.
Annuities won't be right for everyone (people in poor health should probably steer clear). And they're not right for everything because it rarely makes sense to put all of your money in a single product or investment.
You could, for instance, use an annuity to cover the basic expenses that your Social Security check doesn't cover. You might also use the money to buy long-term care insurance, which would keep nursing home bills from becoming a budget-destroyer.
But the president has one thing right: The basic annuity is almost certainly underused. Sure, you may be able to arrange a better income stream on your own, but not without a lot of help from a financial planner or a lot of time managing it yourself. Then there's the possibility, however small, that you'll spend too much in spite of yourself or run into a once-in-a-generation market event that will cause you to run out of money sooner than you expected.
All of that makes basic annuities the ultimate test of risk aversion. If you buy some, you and your heirs may have less money than if you'd kept your retirement savings in investments. Then again, if you guarantee enough of your retirement income, you -- and those same heirs -- won't have to worry about how you're going to meet your basic needs.