Proposal, Testimony or Trial Balloons at House Education & Labor Committee to set up “Universal Pension Plan,” Meaning Confiscation of $3 Trillion Private Retirement Accounts.

This horrifying disclosure was made in the Accuracy in Media issue of 2 3 09. Apparently, testimony occurred sometime in 2007. Currently, this discussion seems very general, without any specific Bill or provisions. However, the implications are so disturbing that some discussion is appropriate.

Supposedly, these accounts would in the future be used to provide much needed government funds. It is unclear whether only new pension contributions would go into government coffers or whether the existing $3 trillion would also be used. If the latter, consider that funds are composed mostly of common stocks. Since most of these are badly depressed right now, would this mean selling them off at current losses? If so, the funds, along with new contributions, would be invested in government bonds. This is the same approach as with Social Security taxes that are “invested” in a non existent trust fund.

The critical point is that viability of current pension benefits and future benefits to current participants depends on interest and appreciation. Invariably, higher returns are projected and depended on than would ever be available in government bonds. Both selling current common stocks and realizing losses or even investing future contributions in government bonds would lower available returns and therefore reduce benefits.

The question is how such reduced benefits would be allocated. One way would be to leave untouched benefits, mostly retirement benefits, payable to current recipients. The entire brunt of lower investment returns would thus fall on other current participants and future recipients. With the egalitarian sentiments prevalent today, along with Obama’s pious call for “shared responsibility,” it seems more likely that all participants would face reduced benefits.

One approach would be to leave current benefits payable and other benefits accrued to date untouched as long as possible. Then, sometime down the road, the lower investment returns would mean the new “Universal Pension” trust fund, or whatever it is labeled, would run out of money. This, of course, is the eventual fate awaiting Social Security, although projections other than investment return are the problem. One solution to eventual “fund” insolvency would be to mandate increased future contributions from employers, analogous to increased Social Security taxes.

Just like Social Security taxes, it is an eminently safe bet that confiscated private pension funds, current and/or future, would be used to cover current government expenditures. They could cover the mind-boggling deficits that would arise from bailouts.

The above views are my own and are not necessarily those of any professional organization.