By William Tucker
As still another showdown over the national debt looms, some experts are
concerned that the Obama Administration is poised to begin forcing Americans to
stock their retirement accounts with low-return government bonds.
Richard Cordray, director of the Consumer Financial Protection Board, told Bloomberg News that his new regulatory agency was
mulling a move to control the $20 trillion that Americans have invested for
retirement. He specifically mentioned 401(k) plans and IRAs.
“That’s one of the things we’ve been exploring,” Cordray told Bloomberg reporter Carter Dougherty in January.
Cordray’s seemingly stray comment was largely ignored by mainstream and
financial media, but won the attention of fund managers and economists.
Cordray suggested that “mismanagement” of individual retirement accounts by
the nation’s major financial institutions could leave investors exposed, just
as those who bought subprime mortgages were left in the lurch during the 2008
housing crisis.
Cordray’s agency is already moving toward regulating 401(k)s and IRAs. In
April the CFPB issued a report questioning the “senior designations” that are
awarded to individual financial advisors who manage retirement accounts. “In
recent years, federal and state regulators, financial industry representatives
and consumer groups have been reporting that some financial advisers with
senior designations are targeting older consumers and selling them
inappropriate and sometimes fraudulent financial products,” warned the report.
Although four financial companies – Fidelity Investments, JPMorgan Chase
& Co., Charles Schwab Corp. and the T. Rowe Price Group – handle the
largest portion of individual IRAs and companies manage their employees’
401(k)s, a small portion of financial individual retirement accounts are
handled by independent financial advisers.
The April report claimed that the CFPB had jurisdiction under the 2010 Wall
Street and Consumer Protection (Dodd-Frank) Act, which directed it to “make
recommendations to Congress and the Securities and Exchange Commission (SEC) on
best practices.”
“CFPB will be clearly overstepping its bounds if it makes a blatant
political move to present itself as a protector of senior citizens,” says Mark
Calabria, director of financial regulation studies at the Cato Institute.
“Congress chose to leave oversight for retirement products at the SEC and
Department of Labor. With the creation of the CFPB, Dodd-Frank is attempting to
do for the rest of consumer finance what the federal government has done to the
mortgage market — to completely politicize it and subject it to twisted
incentives that ultimately cost both consumers and the taxpayer.”
Michelle Muth Person, an officer in the CFPB communications office,
declined to be comment on plans to regulate retirement accounts but said that
CFPB has “no immediate plans” for intervening in the management of individual
accounts.
Despite the reassurance, economists and industry officials are still
worried. “The runaway, unaccountable regulators at the Consumer Finance
Protection Bureau would like to ‘protect’ the IRAs of U.S. citizens by making
them into a $20 trillion ATM for the government,” says economist George Gilder.
Critics fear that the CFPB would claim regulatory authority over IRAs and
self-employed person pensions (SEPPs) on the grounds that seniors aren’t
capable of handling their accounts and are being defrauded by the firms that
manage them.
Then it would argue that corporate stocks and bonds are too risky and funds
should be instead in the one safe instrument that is the equivalent of cash –-
Treasury bonds, backed by the full faith and credit of the United States. Of
course, the returns paid by the federal government are far lower. Treasuries
pay low interest rates and when combined with inflation, usually provide a
negative real rate of return over time.
For now, almost every dollar in America’s individual retirement accounts is
invested in the private sector — which earns higher returns than government
debt. “I wouldn’t put it past the government to go after some of that money,
almost all which is invested in corporate stocks and bonds or real estate,”
says Curtis De Young, founder and CEO of American Pension Services, a leading
financial advisory company.
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