Should Americans Fear Confiscation of Their Retirement Wealth?

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from Think Advisor,

A shocking transfer by Poland of private assets to the government’s balance sheet renews debate about retirement funds’ safety amid government indebtedness.

Imagine if your clients woke up one morning and found that half the value of the 401(k) plans or IRAs you are managing for them was gone.

That would be pretty shocking — since the devastating financial crisis from which Americans are still recovering wiped out “just” a third of the average value of retirement acounts from market top to March 2009 low point.

But something like that happened just last week in Poland, a nation of more than 38 million, when Prime Minister Donald Tusk announced a pension reform that would transfer the assets held in private pension accounts to the state.

Reached for comment, Professor Agnieszka Chlon-Dominczak (left), of the Warsaw School of Economics’ Institute of Statistics and Demography, said the move will weaken trust in Poland’s Social Security system.

“I expect that people will seek ways to reduce their contributions,” Chlon-Dominczak told ThinkAdvisor. “We have a system that in general makes it very difficult not to contribute. If someone works officially, he is automatically covered by social insurance.”

But, she warned, more affluent Poles will likely look to stash more of their wealth in individual retirement accounts outside the mandatory system, “which in the future may lead to a further rise of inequalities,” the Polish economist says.

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