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Obama’s Budget Plans to Nationalize 401K Plans February 28, 2010

Posted by seeineye in : Politics , 1 comment so far

by Bungalow Bill

I warned you a week ago. The United States government is looking at 401K plans to fund the national debt. Obama is calling for establishing automatic workplace pension plans. This means the government will force you to pay another retirement tax, just like they did with Social Security through the FICA tax.

It’s was reported last week, the government was looking at confiscating all 401 k plans to help fund the debt, in exchange for US Treasury bonds that pay interest. Now Obama is pushing the plan.

They are calling Obama’s plan a way to protect your retirement savings. I told you this was coming in the name of security. An early analysis of Obama’s plan, shows the following disadvantage to Obama’s plan.

From the Daily Market:

This proposal is in the 2010 Budget and may be a start of a Government takeover of the American 401k and Retirement Account system. Obama is giving retirement, IRA, and 401k savers something to monitor closely….

President Barack Obama is calling for establishing automatic workplace pensions and expanding unemployment insurance as part of his spending plan for the U.S. Labor Department next fiscal year. We liken this to an “Obama 401k Plan”

The budget “lays the groundwork for future establishment of a system of automatic workplace pensions, to operate alongside Social Security, that is expected to dramatically increase” retirement and personal savings, Obama’s Office of Management and Budget said in its outline, without giving details on the costs.

Obama 401k Plan: What it entails

The plan would force employers that don’t offer retirement plans to enroll employees in a “direct-deposit IRA account,” with the option for workers themselves to opt out. Currently, 75 million working Americans, or about half the workforce, lacks employer-based retirement plans, according to the administration.

The troubling thing to me is that the government would pay a 3% fixed interest rate on the accounts as opposed to the diverse mutual fund offerings in a traditional 401k plan. In effect, this would create a “Social Security” type structure to your retirement, IRA, or 401k.

The lack of equity options in your 401k plan would dramatically affect the possible returns, especially over an extended period of time. Just think, the average equity return over the stock market’s history is somewhere between 9-11%. Do you think that you would be happy with 3%?

A traditional 401k Savings Plan vs. an Obama 401k Plan

$10,000 invested over a 30 year period at a 3% interest Rate

Final Savings Balance:$ 24568.42

$10,000 invested over a 30 year period at a 8% rate of return

Final Savings Balance:$ 109357.30

That is a $84,789 Difference to your disadvantage!

$10,000 invested over 30 years with an annual contribution of $2,000 at 3%

Final Savings Balance:$ 121302.74

$10,000 invested over 30 years with an annual contribution of $2,000 at 8%

Final Savings Balance:$ 356756.97

That is a $235,454 Difference to your disadvantage!

That is $235,454 less you will have on average with the Obama plan, if Obama is successful in replacing the 401k with another government retirement program. I will pull my 401K and pay the less taxes than let the government confiscate it with a 100% tax.