Martin Armstrong Warns "Kiss Your Pension Fund Goodbye"

Tyler Durden's picture

Submitted by Martin Armstrong via ArmstrongEconomics.com,

supremecourt

I have been warning for some time that government was eyeing up pensions.The amount in private pension funds is about $19.4 trillion. The question that has been debated in secret behind the curtain is how to justify to the people taking that over. I have been warning that if this is seized by government, it will come after 2015.75. Just how that is to be accomplished was finally settled by the Supreme Court without any justification constitutionally.

The US Supreme Court ruled last week in the unanimous, 8-page decision in Tibble v. Edison holding that employers have a duty to protect workers in their 401(k) plans from mutual funds that are too expensive or perform poorly. That is simply astonishing since there is no constitutional requirement for even government to provide social benefits. The Supreme court held in HARRIS v. McRAE, 448 U.S. 297 (1980) it was explained that the constitution is negative not positive. There is no duty imposed upon the state to provide a program for that would convert the constitution from a negative restrain upon government to a positive obligation to provide for everyone.

If we take the fact that the constitution is NEGATIVE and was a restrain upon government, then this latest ruling is completely unfounded. Monday’s unanimous ruling sends a warning to employers that they now must improve their plans and it is now an obligation to project employees. This comes just in time for then the next step is government to seize private funds and prosecute employers who choose badly a fund manager. This fits perfectly just in time for the Obama administration’s next assault as they prepare a landmark change of its own by issuing rules requiring that financial advisers put the interest of customers ahead of their own. This creates a very gray area wide enough to justify public seizure of pension funds under management.

This ruling will have a dramatic impact upon investment management and we have already received calls asking about using our model for management purposes since it has one of the longest track records that can be verified in the industry. What this ruling imposes is a tremendous duty upon the plan fiduciary who must now back up his decision with proof. This may also have the impact of foreclosing new fund managers from entering the business since they will lack the track record.

Yet this decision is even deeper. It sets the stage to JUSTIFY government seizure of private pension funds to protect pensioners. When the economy turns down and things get messy, they are placing measures in place to eliminate money in and physical dimension, closing all tax loopholes, shutting down the world economy with FATCA, and preparing for the final straw of Economic Totalitarianism with the Supreme Court reversing its entire construction of the Constitution to impose a duty upon employers to ensure the 401K plans perform in a world where interest rates are going negative. You really cannot make up this level of insanity.

The message here is not that all 401(k)s are bad or too expensive. In fact, costs have fallen 30 percent over the past decade as more plan sponsors turn to low-cost passive investing options. But this can be highly dangerous for to lower costs they turn to government debt where there is no need for fund management decisions. Yes, when I did hedge fund management, the cost was 5% annually plus 20% performance. That cost went to staff around the world that had to monitor positions and the world economy on a 24 hours basis. You paid also NOT to trade for most losses took place when traders were bored are would trade to try to make money when there was nothing to be done. Our track record was the best ever in the industry with the lowest drawn down perhaps in fund management. But that risk reduction cost money.

Today, costs vary widely. Plans with more than $100 million in assets usually have total annual costs below 1% whereas the biggest plans usually are below 0.50%. In small plans, the costs can be as high as 2% today. The focus is now on cost – not performance.

Financial service companies can charge a range of management, administrative, marketing, distribution and record-keeping fees for 401(k) plans. Plan sponsors can assume the costs, but employees are paying at least 85% of all fees typically. It is true that most workers do not know they pay the bulk of the share of costs. A 2011 AARP survey found that 71% of retirement savers do not think they pay any investment fees at all. It is true that the fees make a huge difference in returns over time. However, this drive to lower costs has also lowered the quality of funds management.

The U.S. Department of Labor estimates that a 1% point difference on a current account balance of $25,000 will reduce total accumulations by 28% over 35 years, assuming average returns of 7% and no further contributions. The focus is all on these management fees without any consideration of the problem. Trying to manage money varies according to the size of the fund. The more you gather, often the lower the performance because the markets are not unlimited. You can pick up the phone and say “sell at the market” when you have a $100 million fund, you cannot do that with a $100 billion fund. So the management fee was also a means to reduce the number of clients and it was never a question of unlimited capacity to trade. The numbers on performance would decline with greater amounts of money under management for the manager lost flexibility.

The Supreme Court case clearly shows that lack of understanding of the industry yet the battle centered on the 401(k) plan’s use of retail-class mutual funds when less-expensive institutional shares were available. The difference between those classes typically is 25 basis points. This will now  put pressure on large plans to cut costs further but will not have much impact on smaller plans. That is because big plans have the buying power to negotiate better deals but at the same time they are the easy target for lawyers making them much more attractive targets for litigation.

Cutting management fees to the bone may in fact set the stage for massive losses for many of the older better traders are now just resigning. The quality of the funds management is more likely than not going to decline noticeably.

Between the court ruling and the Obama administration’s push for stronger fiduciary rules send a strong message that government can much easier seize the pension fund management industry of course to “protect the consumer”.

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new game's picture

can't kiss what has been lick-wa-dated. she done been thru da hoop. have a nice try uncle scam...

Captain Debtcrash's picture
Captain Debtcrash (not verified) new game May 26, 2015 3:45 PM

I hear over and over the concern people have over gold being confiscated.  It certainly isn’t any different in any other asset class. Stocks and bonds in pensions and 401k’s, and certainly bank accounts are even more vulnerable.  At least with physical gold and silver you get to look the thief in the eyes.

In the future gold and silver are more likely to replace bonds as the preferred ‘safe’ asset rather than what they are normally compared to, currency. 

Haus-Targaryen's picture

I have no pension.  

My parents do.  My poor mother really believes it will be there for her.  

I am fully anticipating her becoming my complete financial ward when this goes south.  

(BTW government employee & government pension)  

wee-weed up's picture

 

 

Don't need no stinkin' SCOTUS ruling! We have El Supremo Dictator Obozo and his almighty executive orders...

If he wants your pension fund, he'll take it...

Stroke of the pen... Law of the land!

And who's gonna stop him? Boehner?... McConnell?...

ROTFLMAO!!!

stacking12321's picture

the people already have a pension fund manager.

her name is myra.

N2OJoe's picture

Years ago I paid the tax, paid the penalty, and now I hold it in my hand. At age 30, there's no chance in hell that it would still be there when I need it.

Manthong's picture

Ho ho.. he he
Just hope your broke private
pension fund goes off  to
To the PBGC..

 

(you will get less, but at least they have a direct connection to the Heidelberg)

 

SpiOpsChiwowwow's picture

"employers have a duty to protect workers in their 401(k) plans"

"It's my dooty to manage your booty"
--Samuel L. Goldstein

logicalman's picture

It's my duty to look after myself.

If there is government (not the best idea humanity ever came up with) its only duty should be keeping shit somewhat organized.

Imagine if money was backed by something tangible, fiat, fractional reserve, income tax and the back-door tax known as inflation, didn't exist......

Keeping numbers simple.

Start work at 20 - work 40 years and SAVE half of what you make.

Retire at 60 knowing that, because inflation isn't eating what you saved, your good to 100.

If you go before 100, there's something for your kids.

I think I may be on the wrong planet.

 

El Oregonian's picture

Via Ross Perot-ish: "That giant sucking sound, was at one time, your ripe pension."

daveO's picture

With stocks at historically valuations, pensions are ripe for the picking! Better seize them now, before the next recession kicks in and forces the boomers to raid the leftovers themselves.

MonetaryApostate's picture

Robert Kiyosaki warned about this back in his book "Prophecy" like what 15+ years ago?  He said it would happen around 2015/2016, obviously he has strong foresight...

 

 

The state of the kleptocracy is strong.

RafterManFMJ's picture

At least with physical gold and silver you get to look the thief in the eyes.
***
Through a Trijicon, I presume?

Oh regional Indian's picture

Martin Armstrong, a slightly controlled but still brilliant voice. 

2015.75 comes ever closer...

 

The Navigator's picture

Nightforce Benchrest 12-42x56‎ makes 500 yards easy work - the further the better IMHO.

Pension? 401k? All gone - if you don't have it out by now, it's toast - see Greece - see Jade Helm - see cashless society.

PHYSICAL Ag Au Pb and, ah forget it. If you don't know by now, see the toaster, see Greece. See ZH 2010.

So long and thanks for all the fish.

 

J S Bach's picture

One would think that of the three pillars of our imaginary governmental system, the Justice branch would be the most untouchable.  Afterall, judges are appointed for life and thus don't have to worry about graft to be re-elected.

Alas, the corrupted of the Executive and Legislative tentacles have successfully filled the courts with equally soulless (or just indifferent) twits that have no sense of honor or duty in upholding the holy writ of our once-vaunted Constitution.  It truly has become simply a "worthless piece of paper".

Only a second revolution will suffice if there is ever to be an honest Republic again between our two oceans.

AIIB's picture
AIIB (not verified) J S Bach May 26, 2015 6:41 PM

Try 4 pillars... (but not legislative, executive, & judicial)

 

MSM being the 'propaganda arm' (MSM, banking, political activism, & jurisprudence being the others)

 

But CH1 will be here in 5...4...3...2... to tell you that no jews will be involved in any of those 4 'pillars'... So you're money is probably safe & sound...

J S Bach's picture

Bravo, AIIB. 

However, I would place the banksters as the most powerful branch of our "government".  MSM is their useful tool to keep the plebes under the delusion of the original system.

AIIB's picture
AIIB (not verified) J S Bach May 26, 2015 7:22 PM

no doubt

MarkGoldman's picture

5th pillar-Total surveillance. 

Keeps any outliers in the other 4 contained....right John Roberts?

OC Sure's picture

 

 

You're almost there, logicalman.

The purpose of individuals appealing to a third party to govern by the use of compulsion is with a view that the governing body may only use compulsion as the means to remove an existing compulsion among the individuals. Were the governing body to establish compulsion and thereby intitiate the compulsion themselves they would be wrong. The object is to free the individual's natural right of way and not to impede it. 

Simple enough, right? So then the establishment of a national bank, the monopoly of the Federal Reserve, is compulsory upon the individuals and not volitional by the individuals...etc, etc. 

Could be a favored talking point at a second convention of states per Article V of the constitution. Sounds tin-foil, right? But what is the alternative? Continue to boil like frogs or bloody revolt? 

The Founders left a secret passage hidden in plain sight whereby ballots are given another chance over bullets. 

(you are on the right planet. ...don't let it go.)

OldPhart's picture

“Above all, remember that the door stands open.  Be not more fearful than children; but as they, when they weary of the game, cry, “I will play no more,” even so, when thou art in the like case, cry “I will play no more,” and depart.  But if thou stayest, make no lamentation.”

The Golden Sayings of Epictetus (1-90+ AD), XLIV, Harvard Classics; The Five Foot Shelf of Books, Vol 2, Copyright 1909, P.F. Collier and Son Company, New York, Page 131.

oudinot's picture

'The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane'.

Marcus Aurelius

 

Aurelius was a Stoic and a follower of Epictetus

knukles's picture

I do not read the new ruling as being anything like taking away anybody's pension.  The penalty of non-compliance, for lack of a care of duty will be monetary upon the plan sponsor.  It's targeted at the plan sponsor providing the appropriate vehicles as options, etc.  I share people's scorn of government meddling, but this has been discussed since the 1974 passage of the ERISA (Employee Retirement Income Security Act), FFS. 
This is nothing new and nothing more than fear porn.

Richard Chesler's picture

Robbed by financial industry parasites or robbed by gov scum. Such dilemma.

 

N2OJoe's picture

Untill it becomes an "epidemic" of poorly managed funds and government must take over all retirement funds "for your own good".

shovelhead's picture

So I still can get my pension fund managed by John Corzine?

He's got a proven track record.

 I got dewy-eyed diligence.

e_goldstein's picture

Cankles will probably have Corzine as her treasury secretary.

Captain Debtcrash's picture
Captain Debtcrash (not verified) e_goldstein May 26, 2015 9:06 PM

Yet another reason to cause a crash. Pension funds perform poorly giving the government an excuse to seize them...

http://debtcrash.report/entry/never-let-a-good-crisis-go-to-waste

Manthong's picture

OT.. but it caught my attention..

A story is out there about a Danish radio guy that killed a baby bunny while on air in the hopes of stirring controversy about how the food factories work.

I don’t think he killed the baby bunny.

They lost the Nordic stones long ago.

It will take some Nazis to kill the little bunnies.  

Like they will kill the pensions.

Fahque Imuhnutjahb's picture

scrotus  def.-  the area between the scrotum and anus. 

francis_the_wonder_hamster's picture

Sorry if this has been pointed out already, but my interpretation of this SCOTUS decision is that they got it right.  

Most of the 401(k) plans that I've had the opportnity to observe are generally made up of about 10-12 funds, usually 10-12 of the largest funds.  This means they are all basically investing in the S&P 500 and a couple of PIMCO/Vanguard bond funds.  The fidicuary liability is, and should be, huge.  

Now, the SCOTUS decision assumes a non-broken market, so let me play the optimist here and envision a day when markets actually matter again.....fair enough?  This decision actually opens up the market to advisors who might actually recommend investment solutions that don't just parrot certain indices.  This is a good thing.

live free's picture

I told my Mother years ago she should take her pension for it's worth now.... But she and partially my dad are still in the matrix and can't see it.  It really is a wall of the mind that prevents many people from doing what is needed.

Even though they may "feel" it, it takes much more to act on it.

daveO's picture

My last close relative, who remembered the Depression, has been dead for a dozen years. This credit deflation will look a little different, but do the same thing. That is, leave the slow learners penniless.

OLD YELLER's picture

This will happen as it always happens, one turn of the screw at a time.

Farqued Up's picture

Be proud to take it on, we are all going to die. My parents didn't even have burial insurance and I was privileged to take care of it. They gave me life and love and devotion. I'll never regret a nickel I spent in their later years and would give anything to have them here to really lavishly spend now that I can afford it.

joseJimenez's picture

my guns and gold will have to be pried from my cold dead hands.  And here is a kicker, I know a few cops that will do the same.  Not every peace officer is a scumbag.  Oh yea Mr. O, go fuck yourself.

usednabused's picture

Birds of a feather flock together. Your cop buddies sure are fucking scum, whether you want to admit it or not

still kicking's picture

what do you do for work?  let's see if we can group you in as a fucker of some sort too.

willwork4food's picture

PREACH IT JOSE!  AMEN BROTHER!!

sun tzu's picture

Let's say the US Goobermint nationalizes all these retirement accounts. They will need liquidity to pay the bills since you can't pay someone with stock certificates and you can eat them. So they start selling $19 trillion of equities and bonds over the next 5-10 years. What happens to the market with such a huge seller?

N2OJoe's picture

That's easy. PANIC BUYING!!!

Beam Me Up Scotty's picture

Fed prints, and buys whatever there is for sale.  They can print to infinity.  Digital currency only takes a couple strokes on the keyboard to create.

francis_the_wonder_hamster's picture

"So they start selling $19 trillion of equities and bonds over the next 5-10 years. What happens to the market with such a huge seller?"

That was going to happen anyways when the Baby Boomers started to stop contributing from pensions/retirement plans.  This was discussed ad nauseum circa 1999.

What's changed demographically?