It's bad enough that we've been forced to bail out Wall Street, but now the Obama administration is hatching plans to raid our retirement savings too.

Both the U.S. Treasury Department and the Department of Labor plan are planning to stage a public-comment period before implementing regulations that would require U.S. savers to invest portions of their 401(k) savings plans and Individual Retirement Accounts (IRAs) into annuities or other "steady" payment streams backed by U.S. government bonds. 

With $14 trillion fiscal hangover looming, the Treasury can no longer count countries such as Japan and China to be dependable buyers of U.S. government debt. Not only have those nations dramatically reduced their purchasing of U.S. bonds, most of our largest creditors are now actively diversifying their reserves away from greenback-based investments in favor of other reliable stores of value - like crude oil, gold and other commodities.

This growing reluctance couldn't come at a worse time. Just Tuesday, the Congressional Budget Office estimated that the U.S. budget deficit would hit $1.35 trillion this year. And that's not the only shortfall the U.S. Treasury has to address. The U.S. Federal Reserve is supposed to stop buying Treasury bonds for its asset portfolio, a program the central bank put in place last year.

Add to that all the stimulus spending that the taxpayers must now repay, the average government-agency-spending tab has zoomed more than 50% in the last couple of years. That's right - 50%.

The upshot: The Obama administration has to find other ways sell government debt - without raising interest rates, a move that would almost certainly jeopardize the country's super-weak economic recovery.

Instead, the government is targeting the biggest pile of money available as a means of dealing with its fiscal follies - the $3.6 trillion sitting in U.S. retirement plans, including 401(k) plans.

Here's how the argument is likely to be framed...

The system we presently have in place is what's commonly called a "defined contribution plan." The benefits we enjoy during retirement aren't determined in advance. Instead, they are determined by how much money we contribute while working, and by the performance of the investments that we choose. The 401(k) is almost exclusively a defined contribution plan.

Years ago, Americans depended more upon "defined benefit plans" that promised a steady stream of income at a future date - with the actual amounts determined by our years of service or our earnings history. Old-fashioned company pension plans and even U.S. Social Security are examples of defined benefit plans.

By laying claim to our retirement assets in exchange for 30-year U.S. Treasury bonds, annuities or other payout streams, the U.S. government will try to persuade us that we're not capable of managing our own money, that the stock market is too risky a place for most Americans, and that we need Big Brother to hold our hands and protect our futures.

What we need, the Obama administration is going to tell us, is a defined benefit plan. But here's the problem…

Defined benefit plans are great only as long as they are well funded. Unfortunately, most aren't.

In fact, according to various studies, pension funds could already be underfunded by as much as $5.3 trillion. Add that to the $14 trillion we've already got on the table and we're talking a staggering $19.3 trillion - and that's with no escalators, no cost-of-living adjustments and no interest-rate increases. And that's assuming we don't need another round of stimulus.

When pension funds transition from defined contribution plans to defined benefit plans, the only backing they have is the underlying assets themselves and the company or entity that's responsible for the plans - which in this case would be the U.S. government.

If the prospects of your entire future being placed in the hands of the federal government doesn't scare the daylights out of you after all we've experienced so far, I suspect that nothing will.

By backing their plan with 30-year U.S. Treasuries, the government’s betting that you and I won't recall that the trouble with annuities and long bonds is that they tend to get annihilated by inflation. That's why even the most jaded professionals will tell you that investing in such instruments right now when interest rates are being artificially held down near 0.00% is bad juju: Interest rates have only one direction to travel - up, which tends to crush bond prices.

Yet Americans are apparently smarter than the administration believes. A survey by the Investment Company Institute found that more than 70% of all households disagreed with the idea of requiring a retiree to buy an annuity with a portion of their assets. And it didn't matter whether the annuity was offered by an insurance company or by the government.

Let's hope that the full-court press that the administration is getting ready to deploy doesn't snow American investors. If the government succeeds, we'll look back and see that they pulled a pretty slick trick to get our support.

Unfortunately, it won't be the last trick they play with our retirement money. That will come after they have control of our savings - when they make our retirements disappear.

Editor’s Note: A former professional trade advisor and licensed CPA, Keith Fitz-Gerald of Money Map Press provides valuable financial insight and analysis to over 500,000 daily readers in 30 countries. His unique global perspective has given him a critical edge in the recent difficult market conditions - very profitably so for members of his Geiger Index: Those who acted on his recommendations were able to bring home 20 out of 20 winning recommendations in 2009. That’s right  - a 100% perfect record. Learn more about Keith Fitz-Gerald and Geiger Index right here.

Other Related Topics: Debt Problems , Government Issues , Retirement , Treasury Bond Rates

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