Monday, September 9, 2013

Poland Nationalizing Private Pension Fund Assets

The Polish government just announced that they are going to confiscate all bonds in privately owned pension plans.  The bonds will be transferred to the public pension plan in order to reduce Poland's national debt.  Nationalization of these assets must conflict with private property laws.  But, the Polish government does not seem concerned with technicalities.  Desperate people do desperate things.  Public debt was 52.7% of GDP at the end of last year.  If the Zloty were just the world's reserve currency 50% of GDP would be nothing!  US public is 75% of GDP.

Poland provides a preview of what is in store for savers in many other indebted countries.  Many pundits most notably Jim Sinclair predict that the US Government will nationalize assets from tax advantaged plans such as 401k plans.  It seems extreme, but then so is the US financial situation.  

Although extreme, it is possible that the US government resorts to nationalizing private savings plans because, as the bank robber Willy Sutton said "that is where the money is!"  401k plans hold about $3.5 Trillion of assets   Nationalization would hit Mitt Romney hard.  His infamous 401k plan has over $20M in assets.  

On the other side of the spectrum, 27.6% of 401k owners have borrowed against their plans.  Presumably they would be in default as soon as the government confiscated this collateral.  

$3.5 Trillion is not what is used to be!  Recent years' deficits have been over $1T, so all the 401k assets wouldn't even cover a presidential terms worth of deficit spending.

There is much more to know before we can really understand the situation in Poland, for example:

- Are withdraws from the private plans currently blocked?  Otherwise, the owners would take their money and run.
- Will friends-of-the-president be able to withdraw their savings before the transfers are implemented?  Refer to the Cyprus bank bail-in for a best practice.  
- Why only bonds and not equity?  And, is it just polish government bonds that will be confiscated?  What about other governments' bonds and corporate bonds?
- How do the private funds work?  The article states that "private funds within the state guaranteed system would have their bond holdings transferred . . ."  What exactly is the state guarantee for a private fund?  If the state happens to be guaranteeing returns or benefits then the plans are not so private after all.  

Other governments must be watching this situation in Poland very closely.  Savers need to watch out as well.  

Here's a link to an overview by the IRS of what expense may be paid from 401k and IRA assets without incurring the 10% early withdraw penalty.,-Employee/Retirement-Topics---Tax-on-Early-Distributions  Of course, income tax would still be due on withdraws.  


  1. Hungary was very wise to pay of their IMF debt and to get out of the clown circus money debt spiral. The developed countries are paying a large hidden price to participate in global trade. Ostensibly the citizens are enabled to buy a large variety of cheap imported goods, most especially laptops and phones. But behind the scenes the trade agreements trap the country in debt, and international banks become the owners of the resources and infrastructure. At the end of the game, the citizens are slaves in their own country.

    I remember hearing stories about how the dutch traders bought the island of Manhattan for $24 worth of trinkets. I wonder what they could have gotten for an iphone?

    1. It's encouraging to hear of a government that was disciplined and not just focused on the next election to implement prudent policy.

      Excuse the late response. I needed to focus on off-line business for the last 2 weeks.