Are Democrats Plotting to Steal Your 401(k)?

The Department of Labor has issued a "request for comment" on what they can do to encourage more people to annuitize their 401(k)s, rather than actively managing personal investments.  The responses are due out soon, and somehow Republicans have turned this into a worry that Democrats are plotting to get their hands on our retirement savings.

I've read the RFC in question, and I don't see that it says anything of the kind.  It is true that Argentina used a nominally similar dodge to grab the contents of peoples' retirement accounts, but the situation is rather different than what DOL is suggesting; Argentina folded the private accounts into its bankrupt public pension scheme in order to temporarily shore up the finances of the latter.  DOL is simply saying it wants to encourage people to take a big hunk of cash out of their 401(k)s and buy annuities with it.

Now, this is not, to my mind, a very good idea.  The bureaucrats at Labor are very worried that people are bearing too much investment risk, which looks bad right now.  But of course, you cannot actually get away from investment risk by buying an annuity, because the insurance company or other financial firm who sells it to you also bears investment risk, and if the market doesn't perform, it will have difficulty making your annuity payments.

You can argue that the insurance company is less likely to make stupid decisions about their investments, and this may be somewhat true, but 401(k) options are usually pretty limited, which means not that many people are going to be able to take a flier on speculative microcaps.  If you're truly worried, issue some regulations encouraging better life-cycle investment management (i.e. getting older people to shift their portfolios towards bonds).

But all this is neither here nor there when it comes to claims that the Democrats are engaged in some sort of nefarious scheme.  They don't need some secret, subtle way to take the contents of our retirement accounts; they can do it the normal way, by raising tax rates.  (This, by the way, is why I'm not-so-hot on Roth IRAs; I suspect that there's a fair danger that the capital gains in those accounts will ultimately be taxed, at least for wealthier retirees.)

Note that making the strong argument for which there is no evidence has crowded out the better argument, which is that the government hasn't offered much evidence that a widespread return to defined benefit options is a net improvement for society.  There's a reason that companies have moved away from those plans, which is that they tend to catastrophically collapse at the worst possible time for both corporation and retiree.  I'd want to see some realistic model of a stable system in which everyone annuitizes before I started generating RFCs on how to move to that system.  Nostalgia for the fifties won't suffice.

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