Just before the recess, Senators Jeff Bingaman (D-NM) and John Kerry (D-
RIMA) put forth a bill called the Automatic IRA Act of 2010 (S.3760). Here’s how it is supposed to work.
If you work in a company that has more than 10 employees, and your company does not already offer a retirement plan that involves automatic deductions from your paycheck, you can set it up so that the Federal government can deduct money from your paycheck and deposit it into a Roth IRA. Basically, just like any other IRA or even a 401(k).
Vice-President Joe Biden thinks it’s a humdinger of a good idea, and he’s right about everything. “Right now in America, nearly 80 million workers have no employer-based retirement plan, making it hard to save enough for the secure and dignified retirement they deserve.”
Where have we heard this before? Ah, you probably are thinking ObamaCare, wherein a dozen million uninsured people warrant bankrupting the remaining 288 million insurable people. But, no, the Czar is thinking differently here. The Czar is thinking of FDR.
Is this another backhanded Democratic Party admission that social security is a bust? Wasn’t the whole effing point of social security to withhold a portion of our paycheck to safeguard our retirement? And what does Biden know about dignity?
And when past Republican presidents toyed with the idea of using private retirement plans as an alternative to social security, the Democrats jammed it down their throats. Of course, you see, there is a difference here: this isn’t an alternative to social security—it’s in addition to social security. So we keep the original failing entitlement the same; we just find a way to get you to pay more into it.
But as with any other Democrat-only plan endorsed by the usual gang of idiots, there’s more to this than meets the media eye. First, if you do not wish to participate, you have a process to go through in order to opt out. You read that right: if you do not want the government snipping off pieces of your paycheck, you have to take positive action to prevent it. Remember the old days of free market capitalism, in which if you didn’t want to participate, you simply did nothing?
The hit on your check would be 3% each check, which you can raise or lower. As we know, 3% is probably not going to let you retire. You can also switch this out to a traditional IRA. But what is this IRA based on? Treasury Bonds! So of course, this money goes to the government; it does not, despite initial gushing, wind up entirely in your control as you can get with a 401(k). The only “control” you have is to pick which company you will buy the T-bond from; like ObamaCare lets you pick from one of the following pro-government insurance packages.
And the employer, of course, takes a hit. For the first two years, the Democrats are nice enough to give your employer a $250 tax credit to offset the costs of going to this plan. Remember, it does not matter if you do not want it; it only takes one employee to fire it up and make it mandatory for you and create a process for every other employee who does not like it. After those two years, the employer eats the administrative costs. And yes, there is a $100 fine per employee if you do not participate.
Your only escape from this, employer or employee, is to already have an automatic deducting retirement plan in place. That’s relief for the many companies who do—but this is going to be another hardship on the small, growing businesses who do not have such a plan in place yet.
So if you consider the Arf and Barf down at the corner, in which Kitty “Moe” Lester employs eleven teenagers to sling hot dogs and colas for the high school up the street, all it takes is for one of those kids to demand a 3% cut in pay for his “retirement.” Now Kitty has to provide it for all of them, and the remaining ten kids have to fill out a complex opt-out form if they want all their hard-earned pay. Egregious and improbable though this example is, you understand the madness of it.
Of course, neither Senator Bingaman nor Senator Kerry has every been a small employer, has never really worried about their retirement, and consequently understand nothing of what the average working American worries about in regard to retirement.
Part of this concern is flexibility. When you are 22, you are willing to take a lot of risk. When you are 40, you want to diversify. By age 60, you need to eliminate all risk from your retirement plan. Where are these options for you? Nowhere—you are ultimately tied up in a one-size-fits-all plan that ties your money up in Retirement Bonds…R Bonds, they’re called.
What’s an R bond? Details are sketchy, but they appear to be undiversified investments, meaning that if you retire during a period of high inflation, you are screwed. There is no way to switch your investments to something that performs better in inflationary periods. This can wind up being disastrous for millions of people.
And if it is, whom do you think gets to bail out retirees swindled by Bingaman and Kerry? Dig deep, friends. Of course, like ObamaCare, the bill is being voted on without any real clue as to what these details will be. This means that employers get stuck with having to help employees pick and choose options that they themselves may not fully understand.
The funny thing is that the Czar is okay with additional retirement investment plans for everybody. But this is not the job for government. Nor is it the employer’s job to manage their employees’s retirement options. This can only belong to the individual himself, or herself.
So the Czar’s question is—where is the demand? An employee with no retirement plan can call any accountant, any bank, any insurance agent, and any online investment service and set up a savvy system of automatic deductions. Traditional and Roth IRAs as well as annuities are available for a range of plans, many of which will automatically manage themselves as inflation or deflation occur, as interest rates raise or lower, or stocks rise and fall.
Once again, we have a Mandatory Government Solution!™ for a problem that does not exist but will serve to hurt more people than it helps. Senators Bingaman and Kerry, if this is how the Democrats seriously plan to reduce our nauseating debt, we will see you in the Autumn.