Federal Pension Bubble is About to Pop: Remember the Government Has a Plan for Your 401K

A few weeks ago, as Congress adjourned for the mid-term elections Senator Harkin and Senator Sanders met in committee to discuss how they will handle the coming federal employee pension crisis in America. If you remember, days before Rush Limbaugh was talking about this, I warned my readers about their plans. 401K confiscation is on the the table.

Yesterday, the Las Vegas Review-Journal the bubble is getting ready to pop on these federal pensions. My guess is the lame duck congress is getting ready to push through whatever it is Harkin and Sanders decided on while most of the Congress went home.

While the editorial recommends pushing federal employees towards a 401K system, there is still nearly $600 billion in unfunded federal pensions that are about to cause Washington a huge headache. Remember, our founding fathers didn't give the federal government any kind of authority to assist in retirement, and we are seeing why now.

Defined-benefit plans stem from a bad moment in time in which employers -- and now unions -- cared for employees like children incapable of planning for their own retirements. Over time, these plans metastasized into grotesque shadows of their initial good intention.

In a perfect world, defined-benefit plans get the math right in terms of how much a government employee must put in and how much the taxpayer must put in. The rules for retirement are reasonably set and never abused; costs for health care remain predictable; and defined-benefit plan funds are wisely and conservatively invested to keep the plan solvent regardless of the number of employees in the plan.

Virtually every state in the nation has broken those fundamentals, producing what is called an "unfunded liability." Whatever the shortfall in a state's defined-benefit plan for the retirement and health care of public workers, the taxpayer -- both present and future -- must pay.

The question is just how exactly will they be forced to pay. It may all come down to robbing Peter to pay Paul, which is exactly what Harkin and Sanders discussed in their meeting earlier this fall.