Protection of plan assets

[doombuggy]

I had a client call us this am concerned about his plan assets. He's in the newspaper buisness, so I think he hears A LOT more than I do.

Here's some basics:

Client called this am concerned about the protection of the plan assets.

This client has a 401(k) PSP and the assets are held at Nationwide. Each participant has their own account and controls their own fund selection.

If a participant declares bankrupacy, all assets are protected against creditors, correct?

Are the assets of the plan as a whole protected from creditors, including the federal government? This client is very concerned about rumors and discussions that are circulating in the media during this economic downturn.

What are your thoughts? I hesitated to ask the client if he felt that the government would go after the assets of the plan if his business was failing, so I am not exactly sure where he's going here. I had another client call the day after the election last week to discuss changing from a 401(k) PSP to a Db or cash balance plan because Obama got elected.....

Have any of you gotten calls from clients who are concerned? Thanks for your thoughts!

[Bird]

Yes, plan accounts are protected from general creditors, except I believe the feds can make a claim for taxes.

But I think your client might have been reacting to this: nutcase

(For those who don't want to bother, some idiot wants to have the government confiscate all private retirement plan accounts and convert them to a Guaranteed Retirement Annuity. And the headline could lead one to believe that she was taken seriously by the House Committee on Education and Labor.)

I'm sure we'll be seeing changes but not this one.

[WDIK]

I got a call about the very article Bird brings up. The client is convinced of an impending apocalypse and wants to "hide" all pension assets before they are confiscated.

[david rigby]

Yes, plan accounts are protected from general creditors, except I believe the feds can make a claim for taxes.

But I think your client might have been reacting to this: nutcase

(For those who don't want to bother, some idiot wants to have the government confiscate all private retirement plan accounts and convert them to a Guaranteed Retirement Annuity. And the headline could lead one to believe that she was taken seriously by the House Committee on Education and Labor.)

I'm sure we'll be seeing changes but not this one.

Maybe. I've heard Ms. Teresa Ghilarducci give a radio interview on this subject. She is very serious, including such phrases as "share the wealth". However, I agree (hope) that she won't get any traction in Congress.

[Guest mjb]

I got a call about the very article Bird brings up. The client is convinced of an impending apocalypse and wants to "hide" all pension assets before they are confiscated.

Tell him that there is protection under the 5th amendment against taking private propertry for public use without just compensation.

Also the article is so badly garbled as to be unreliable.

[GBurns]

There are quite a few people in places like New London, CT; Palo Alto, CA; Long Branch, NJ; Delaware, Missouri and other areas, who seem to be wondering about the 5th Amendment and the issue of emminent domain.

[Kevin C]

That nutcase was appointed to the PBGC Advisory Committee by a certain ex-president named Bill.

I saw an article the other day that claimed she is under consideration to be the new head of either the SEC or the PBGC.

GBurns, you can add Texas to your list. We had a local city use emminent domain a few years ago to force people out of their homes so the local shopping mall could expand.

[Guest mjb]

There are quite a few people in places like New London, CT; Palo Alto, CA; Long Branch, NJ; Delaware, Missouri and other areas, who seem to be wondering about the 5th Amendment and the issue of emminent domain.

George:

The eminent domain that you are thinking of is when a municipality condemns private property and gives it to a developer for private use. That is different from seizing private property for public use which has always been permitted under the 5th amendment but the government is required to pay the fair value of the property to the owner. If the government seized all 401k accounts it would be required to pay the account holders the value of their accounts. I dont think the government could afford the $2-2.5T cost of seizing 401k plans even at the current depressed market values (down from $3T).

[GBurns]

I recall that the cases and reports all had the private land go first to the government THEN the government's ownership is transferred to the private developer.

I do not recall any reports of direct to private developer incidents.

If I am correct then the flow of 401(k) money could follow that precedent in which there was no fair value paid by the government.

[Guest mjb]

I recall that the cases and reports all had the private land go first to the government THEN the government's ownership is transferred to the private developer.

I do not recall any reports of direct to private developer incidents.

If I am correct then the flow of 401(k) money could follow that precedent in which there was no fair value paid by the government.

George:

Yes, the government can condemn the property to take title and then transfer title to a private developer. (Condemnation is the judicial process under which the government commences an action in a court of law to take title to private property and pay fair value. If the government refues to pay fair value as determined by the court, the court will not issue an order awarding legal title of the property to the government. The transfer of title does not occur until the government pays the fair value to the property owner.)

Under the 5th amendment of both the federal and state constitutions the government always has to pay fair value if it condemns private property, whether or not it transfers the private property to a private developer. The US is not the soviet union.

How could the federal government seize private property such as 401k assets without having to pay the account holders?

What experience do you have in condemnation actions?

[david rigby]

Sieze the accounts? Methinks that is the wrong verb. The proposal is (essentially) to require that the government be the "trustee", which does not cancel existing accounts and is not the same as seizure. (It's still a bad idea.)

[GBurns]

Are you being serious ?

"How could the federal government seize private property such as 401k assets without having to pay the account holders?"

How can they wiretap and eavesdrop?

How can they detain withoout charging?

Rendition ? Noriega?

The federal government does many things that could be questioned. Some done in the name of national security and some things for reasons they never explain. What do you think covert activities are ?

As a last resort they could pass a law or just get a Signing Statement or Executive Order.

"What experience do you have in condemnation actions?"

An irrelevant question. You do not need to be an auto mechanic to know when your car won't start.

[Guest mjb]

Are you being serious ?

"How could the federal government seize private property such as 401k assets without having to pay the account holders?"

How can they wiretap and eavesdrop?

How can they detain withoout charging?

Rendition ? Noriega?

The federal government does many things that could be questioned. Some done in the name of national security and some things for reasons they never explain. What do you think covert activities are ?

As a last resort they could pass a law or just get a Signing Statement or Executive Order.

"What experience do you have in condemnation actions?"

An irrelevant question. You do not need to be an auto mechanic to know when your car won't start.

George:

Condemnation is not a matter of national security and there is nothing covert about the seizure of private property by the federal government. The Supreme Court rejected President Truman's seizure of US steel mills during the Korean War on the grounds of national security. Why would it disregard precedent?

Your rambling response demonstrates how relevant my question was to your competency to discuss this matter.

[K2retire]

George is not the first person I've heard expressing these concerns. Apparently the publicity for this proposal is growing.

Thanks for the link to the initial article.

[Guest mjb]

George is not the first person I've heard expressing these concerns. Apparently the publicity for this proposal is growing.

Thanks for the link to the initial article.

Which proposal are you thinking of? There are as many proposals being floated as there are tenured accademics (non of whom are constitutional scholars) looking for jobs in the new administration. It still comes down to the basic question of how the US government can seize private property under the 5th amendment as it has been interpretated by the Supreme Court for over 200 years.

[Kevin C]

I doubt a government seizure of 401(k) accounts would happen because of the public reaction. I doubt those who had their hard earned savings taken would vote to re-elect those who were responsible.

The nutcase's proposal is probably getting more publicity because of what is happening now in Argentina.

Argentina article

MJB, as you mention, the government decides what the fair market value is, subject to review by the courts. If the court making the decision is dominated by activist judges, do you really think they would have a problem with saying that promised future benefits are a fair market value payment?

[GBurns]

mjb

What makes you more competent to discuss this matter ? Being pompous and arrogant is not a qualification.

Items or issues deemed to be in the interest of national security are solely determined by the government. If they deem the condemnation of any particular piece of property to be in the interest of national security, that is their perogative and not subject to your interpretation. The affected party if, of course, free to litigate if that is possible in the particular case.

Since you are a lawyer, I thought you would know that precedent is not always followed.

[GMK]

Kevin C - I hope you are correct, but public reaction is rarely the deciding factor in what the federal government does.

And don't worry about the legislators. 94%-98% of them will be reelected no matter what side of this or any other issue they are on or what they do or do not do.

[Guest mjb]

Sieze the accounts? Methinks that is the wrong verb. The proposal is (essentially) to require that the government be the "trustee", which does not cancel existing accounts and is not the same as seizure. (It's still a bad idea.)

If the Government acts as trustee will the participants be able to withdarw their funds without the government's consent.

And what function will the Government perform as trustee? Will it protect the assets from loss, loan the assets to the US treasury (assuming that the prohibited transactrion rules are repealed), provide retirement income to the needy?

And who will be the government trustee- Social Security, the Treasury secretary, Chairaman of the Federal Reserve???

What would be the benefit to the account holders for having the US govnerment act as trustee?

[GBurns]

The answers seem somewhat self-evident even though speculative since this is all hypothetical or "iffy".

It all depends on what the government's plan is.

[Don Levit]

Would the government actions as a potential trustee mirror its behavior as trustee of the Social Security and Medicare funds?

Don Levit

[Guest mjb]

The answers seem somewhat self-evident even though speculative since this is all hypothetical or "iffy".

It all depends on what the government's plan is.

Isn't "the answers seem somewhat self evident even though speculative" an oxymoron?

[GBurns]

Does that in any way diminish the sentence ?

[K2retire]

Would the government actions as a potential trustee mirror its behavior as trustee of the Social Security and Medicare funds?

Don Levit

That's the question that makes this all even more terrifying!