Will Obama’s Lifetime Income Plan Confiscate Your Retirement?
Feb. 14, 2010
Instead of productive public policies to create jobs, the federal government is pushing an increasingly nerve-wracking idea.
The Obama Administration appears to be taking an elitist approach regarding your retirement plan – bureaucrats ostensibly think they know better than you regarding your retirement planning and money.
Yes, the federal government is considering proposals to convert your 401 (k) and IRA accounts to annuity-type plans.
On February 1, President Obama advocated amending government rules that permit 401 (k) retirement plans with annuities.
There have been multiple news accounts of the government’s scheme. A comprehensive BusinessWeek report concerning the Obama Administration and your retirement was published Jan. 8, 2010 but didn’t seem to attract much attention.
The article by Theo Francis explained the plan, and indicated the U.S. Treasury and Labor Departments want Americans to weigh in on the ideas to exchange their retirement plans into annuities. Carrying the annuity ball for the Obama Administration are Assistant Labor Secretary Phyllis Borzi and Deputy Assistant Treasury Secretary Mark Iwry.
The government has begun soliciting comments.
Naturally, there are several companies that would benefit because they sell annuities including AIG (the company that received a $182.3 billion taxpayer bailout). The major players also include MetLife, Hartford Financial Services, Lincoln National, and New York Life.
In general, annuities would seem attractive because they guarantee funds until a retiree passes away. The thought is they’re a hedge against retirees running out of savings. And some people seem to think that annuities are a viable option for senior citizens because of their losses in the stock market.
The article quoted a 2009 report that stated only 2 percent of 401 (k)s are switched to annuities.
Fidelity Investments reported the average 401 (k) fund decreased by 31 percent between 2007 and 2009.
Hence, the alleged government interest in retirement security for citizens.
A lot of money is in retirement plans: $3.6 trillion, according to a trade group in Washington – the Investment Company Institute.
So what, you ask?
Well, my sense is that the government bureaucrats have another furtive motive.
In 1993, Democrats were looking into ways to get control of retirement funds. During the Clinton Administration, there was a proposal to levy a 15 percent tax on retirement plans to share wealth with low-income citizens. The scheme was attributed to Dr. Alicia Munnell, who was assistant secretary of the Treasury for economic policy. But the idea died with the 1994 voter revolution that swept Democrats out of office.
Early in my career, I enjoyed working for two insurance companies offering annuities. Because of the expensive fees, sales commissions were healthy which conjured images of me driving a new Lamborghini as a 20-something.
But in some ways it was embarrassing. Annuities were not flexible or affordable for many of my policyholders. Plus, the annuities would not have yielded sustainable retirement incomes.
If annuities seem like a good idea for your situation, fine. But for many, they’re not viable, and a government-backed enterprise would not be productive.
Just look at the mismanagement of the Wall Street bailouts. The plan was not transparent and was administered by bureaucrats with a conflict of interest. The big banks still are not loaning money to deserving businesses and consumers, and the investment bankers are once again getting huge bonuses made possible by taxpayers.
Moreover, why give the federal government more power over your finances? If the government succeeds and does try to resurrect the Clinton proposal, redistribution of wealth represents another theft of your economic and political freedom.
A government plan to provide lifetime income. I don’t think so.
My hope is that you give the Obama Administration a loud, ringing earful.
From the Coach’s Corner, by May 3, 2010, here are three options in which you can comment:
- Via post office – U.S. Department of Labor, Office of Regulations and Interpretations, Employee Benefits Security Administration, N-5655, 200 Constitution Ave. NW, Washington, DC 20210, Attn: Lifetime Income RFI.
- Via e-mail – E-ORI@dol.gov
- Via the Internet – Visit Regulations.gov
Investor: Tips for Increasing Cash Flow, Profits
For a growing business, cash flow is crucial for profitability. That’s also true for the biggest companies and sectors traded on Wall Street – airlines, cars, financial services, oil or technology.
Every company is concerned about cash flow; but in 2008, 128 of the Fortune 500 companies in the nation had red ink. They include General Motors, Citigroup, Motorola, AIG, Merrill Lynch, ConocoPhillips, and Time Warner.
Cash flow enables you to make productive decisions to navigate and grow in the competitive marketplace.
No one knows that better than angel investor John B. Dimmer, the managing member in FIRS Management LLC, a private investment firm based in Tacoma, WA. He is also a director at three companies and has extensive management experience.
Here is a sample of his cash-flow solutions:
Q: How do you recommend predicting a cash-flow crunch in time to do something about it?
A: You need monthly income and expense forecasts that are established at the beginning of the business year. These must be realistic numbers that all of the management staff has agreed are reasonable. The second things you need are timely and accurate financial statements.
It is very much like planning a road trip in the car. You are trying to get from point A to point B, so you plot a route. You know that there are landmarks along the way. Every now and then you need to stop and check for these landmarks. If they show up where you expect them, you know you are on the right track. If not, you need to evaluate how far off course you are, and take corrective action.
Q: What strategic process do you recommend to evaluate the causes of cash deficits? What are the most promising solutions?
A: Getting back to our roadmap analogy, if you don’t see a landmark that should be there, or you find a new landmark that wasn’t on the original plan, you need a process for getting back on track. You need to take the time to evaluate where you are, where you should be, and what went wrong.
When you are off plan, there are some fundamental questions that need to be asked: Was the original plan flawed? Has there been a fundamental shift in the business such that the original plan is no longer applicable? Did we make an execution error? When, where, and what was it? Can it be corrected? What are the critical variables with respect to getting back on plan?
Usually this involves one primary variable, which is money. Whatever solution you take, you need to make sure you have enough money to fund it through implementation.
Q: How do you recommend finding creative ways to keep the business alive until sales pick up?
A: One of the mistakes I often see are entrepreneurs who staff their organizations under the assumption of optimum activity. The truth is that there are cycles to business. While not all business can use contract help, I like to try and have my companies staffed to a smoothed-average that is just above the troughs and just below the peaks. In this fashion, you can quickly and effectively reduce your labor costs in times of a slowdown without causing a morale-crisis with your permanent employees. I would also use slower times to beef up on training in preparation for when the good times return.
Finally, encourage your staff to make things happen. When we hit a slowdown in the car business, we ask our sales staff to get on the phone and start calling people. This usually starts with former customers and takes the form of a friendly call simply to inquire how everything is going with their car. Often times, you discover that they love their car, and they have a friend who is interested in buying a new car. Sometimes you find that they love their car and they want to buy another. And sometimes you find that there is a problem. Problems, however, create opportunities. If you invite them to come in, and then solve their problem, they will remember that you were proactive. They will tell their friends about their experience, and their friend will come and see you for their car needs.
Q: What about negotiating with investors or other financial supporters until cash flows increase?
A: Investors hate bad surprises, especially when the surprise is accompanied by an emergency need for funds. Assuming you created the roadmap, and are tracking your progress, you should be able to see the bump in the road well before you actually hit the bump. Most investors are business people who have been down the road before and know that everything is not smooth sailing. They will appreciate the fact that you have a plan, that you are tracking your results against the plan, and that you have foreseen a problem before it hits.
Generally cash flow problems mean you need to borrow more money or raise more equity. If such is the case, have your presentation for raising new money ready to go so that you can transition from the communication stage to the pitch. Be humble, because the last thing I really want to hear as an investor is how smart you are and how great everything is going when, in fact, you are off plan and running out of money.
Part of the negotiation is an acknowledgement of the problem, a rational analysis and a well-crafted solution. You, as the owner, may need to take a bit of a hit in order to implement a solution. This might come in the form of a down round of fundraising where you are force to make up the dilution to the other shareholders out of your own holdings. Know what you are and are not willing to do. If you are forced to give up something to keep the company alive, figure out how to get it back, perhaps via options, if your revised plan was the proper call and the company comes roaring back.
Q: How do you know when it’s time to close or sell the business?
A: I always want to stay in the game, even when it is two outs in the bottom of the ninth inning, you are down by five runs, and the count is full, there is still a chance you can pull off a win. Nonetheless, I try to keep entrepreneurs from getting in so deep that if their company fails, they are wiped out. I’ve been involved with two companies where I had to tell the entrepreneur that they shouldn’t put any more money into the operation.
In one of those instances, we were able to locate a buyer for the company. The purchaser was a publicly traded entity that, since the purchase, has taken a bit of a down-turn, so the jury is still out as to whether the entrepreneur will come out whole. Nonetheless, it was a better option than closing the doors. With the other company, we have what we feel is great technology; we just can’t seem to get a revenue stream developed. We are in the process of procuring a patent, and think that it will have good commercial value once the patent is issued. Accordingly, we have put the operational aspect of the company in suspense, and are pursuing acquisition opportunities. The biggest risk on this strategy is a failure to cut a deal followed by an impotent patent.
I never advocate simply closing the doors. If you are doing proper planning, you should see the problem coming down the road. There should always be something saleable about your company, even if it is less than a full recovery.
From the Coach’s Corner, Mr. Dimmer’s other tips:
- “How to Attract an Angel Investor” – www.bizcoachinfo.com/archives/1367
- “How Investor Has Fun in Business and Technology” – www.bizcoachinfo.com/archives/1272
