The ‘Pensioncare’ dream of annuities for all

Since Detroit’s recent bankruptcy filings and pension horror stories, politicians are now becoming increasingly delusional that they can legislate retirement security for all.

Both private and public sectors are under pressure from politicians to provide sufficient and sustainable pensions to their employers at all costs. Universal-health-care-utopian dreams are now being channeled to universal-lifetime-income dreams.

California dreaming

A lot of good ideas and innovations have come from California, and they are a trendsetter with a lot of things — except when it comes to pension legislation.

The California state legislature passed a bill last year that would “allow” workers to put 3% of their pay into an investment pool managed by a state board called the Golden State Retirement Savings Investment Board. That board would be required to invest the money only in conservative investments like U.S. Treasury bonds. These new accounts (referred to as “automatic IRA’s”) are the centerpiece of the proposed bill, called the Secure Choice Retirement Savings Program. The Board was authorized to conduct a feasibility study and then submit a final plan for approval by the California legislature.

That bill is now being aggressively discussed again to hopefully create a retirement savings type plan for the estimated 7 million California private sector workers that don’t have retirement plans offered at their current place of employment. The first obvious question that comes to mind is how can a private sector retirement plan be run by the state government?

The other question is the claim made by legislators that employers would incur no cost other than the administration of deducting the 3%, and it seems like a matter of time until the employer is mandated to put some skin in the game. Similar bills have been introduced in Maryland, and other states like Illinois, Washington, Wisconsin, Oregon, and New York are looking to take a similar utopian-pension paths.

For every political action, there’s a private sector reaction

I always chuckle in amazement when revenue projections based on tax increases never seem to hit those goals, and politicians seem “shocked” that people and businesses take actions to avoid the tax.

Just like employers are limiting hours and “playing the system” to avoid coming Obamacare costs, the same thing will happen with proposed bills that try to legislate pension income in the private sector.

Businesses will either leave the state if they can for a more business-friendly state, or find out how to “get around” the rules that will be legislated upon them. Businesses aren’t endless pools of money, and politicians can’t keep coming to the well over and over again.

Somehow the action/reaction rule that we all learned in school is conveniently forgotten once a person is elected into office.

G.L.I.B. = Government Lifetime Income Benefit

In the annuity world, you can pay for an attached benefit that is a transfer of risk to the annuity carrier to provide income for life. In the industry, the acronym is GLIB. That stands for Guaranteed Lifetime Income Benefit. Not anymore if some of our politicians get their wish! The “G” is going to be replaced by the word Government if Tom Harkin, Orrin Hatch and others have their retirement income for all dreams fulfilled.

I get the fact that they are trying to supplement Social Security, but the road to retirement purgatory is going to be paved with political good intentions (and higher taxes). With more than $7 trillion in personal IRA’s and 401(k) type plans, there will continue to be an increasing call from politicians to pool or share those assets for the betterment of everyone’s retirement.

That political call for “shared sacrifice” is going to become a lightning rod when individual IRA’s are targeted to achieve the lifetime income for all mantra. I always say that when/if this ever happens, people will get in their cars and drive to Washington to personally defend their IRA’s. To quote Malcolm Gladwell, that political overstep will be the “tipping point.”

The new Obamacare will become ‘Pensioncare’

I don’t want to burst the right wing’s repeal bubble, but Obamacare is now a law, and we all know that laws are pretty permanent. Just in time for the 2014 midterm elections that we all are so eager for, I predict one of the most popular talking points will be what I call “Pensioncare.”

If politicians thought health care was a hot issue, Pensioncare will be the mother load. The health-care-for-all argument will transition to lifetime income for all, and will prove to be a pretty easy political pivot. Everybody likes money. Everybody likes money for life. Everybody, including voters, will love Pensioncare. If our current president wants his name stamped on this new political gold mine, then I guess the logical name progression should be “Obamannuity.”

The continuing trend of government “solutions” for everything needed in your life has predictably arrived to the topic of lifetime income. For all of you do-it-yourselfers out there, annuities can provide that transfer of risk of never outliving your money. That’s assuming, of course, that you want to take personal responsibility for your future retirement needs. Yes, unlike most politicians, I said the words: Personal responsibility.

My apologies to all the aspiring Pensioncare politicians for that rational line of thinking as they eagerly jump on the lifetime-income-for-all bandwagon. This Pensioncare platform will sound great on the campaign trail as politicians talk about future “income inequality.”

My advice, once again, is to pay attention and hold on to your wallets.

Orginially published by 7.30.2013 –