The beleaguered 401(k) has been under unrelenting pressure from every direction. Eliminating its tax subsidies was a much discussed idea during the march toward the fiscal cliff, then again as a way to avoid the sequester cuts.
Recently, a prominent liberal blogger stirred controversy in a USA Today op-ed titled "401Ks are a disaster," calling for a massive boost in Social Security benefits funded by taxes on the rich and a lifting of the salary cap in Social Security taxes.
Not to be outdone, a conservative author is heating up the blogosphere with a full frontal assault on the 401(k), advocating that Americans not contribute to their retirement plans for fear the government will eventually be forced to confiscate their assets when the day comes that the liberal blogger's Social Security scheme is realized.
Last month, the economist Duncan Black, who writes one of the most popular liberal blogs, Eschaton (an expression connoting the divinely ordained climax of history), under the pseudonym Atrios, took to the pages of USA Today, calling on the government to increase Social Security benefits by 20 percent.
"The 401(k) experiment has been a disaster, a disaster which threatens to doom millions to economic misery during the later years of their lives," Black wrote, arguing that current and near retirees lack sufficient funds to maintain their standards of living, while younger workers will be too economically squeezed by college debt and difficulty finding good jobs to save for their futures. Black wrote the benefits hike should occur immediately, "even if that means raising taxes on high incomes or removing the salary cap in Social Security taxes."
Meanwhile, Aaron Clarey (right), whose Captain Capitalism blog includes what he calls the "rantings and tirades of a frustrated economist," added to the eschatological debate with a book published in January called Enjoy the Decline, in which Carey audaciously advocates behaviors like shopping for another country and not funding a 401(k). The advice is especially ironic because, according to his website, Carey teaches investment classes including one called "Figuring Out Your 401(k)," which he, no doubt accurately, describes as a "class that goes above and beyond what your HR department will" recommend.
In his book, Clarey describes recent precedents for countries absconding with their citizens' private retirement wealth, citing Argentina's seizure of private pensions in 2008, and similar moves by Bolivia and Hungary in 2010 and Bulgaria in 2011. AdvisorOne caught up with the controversial blogger, who teaches investment classes to students worldwide through the online learning portal Ed2Go, when he's not teaching ballroom dancing to students of his Midwestern dance studio. Efforts by AdvisorOne to reach Black were unsuccessful.
You say the government might one day confiscate Americans' retirement savings. What about the Fifth Amendment, which states "…nor shall private property be taken for public use without just compensation?"
Honestly and truthfully I believe the government would confiscate Americans' retirement savings. As for the statistical chances of it, I would say only 40 percent right now as it would be incredibly unpopular, making it a theoretical "4th rail of politics." But as our finances get progressively worse, politicians will be forced to find some source of wealth to … pay for all the various social programs. Their only other option is to hyperinflate their way out of it.
As for the Fifth Amendment, it would be rendered moot, as the reason or rationale that will be provided is — in return for people's private pensions/401(k) plans/IRAs, etc., a government pension will be provided instead. This, no doubt, will be used to rationalize away any Fifth Amendment concerns, and barring some moral and courageous judges striking it down, I see all three branches of government invariably agreeing on this excuse.
What would the confiscation look like, were it to actually occur?
