There has been talk in the press about the Poland government trying to seize private pension accounts of Poland citizens as a way of keeping the country’s debt nominally in check. Poland adopted a partially funded public pension system in 1999. Under the system, slightly more than one-third of workers’ social-security tax, or 7.3% of wages, went to a personal investment account rather than the old pay-as-you-go system. This type of public pension system is different than the pay-as-you-go system which is in place in the United States, which requires the individual employee to elect participation in the plan and the amount of the annual contributions.
Due to the global financial crisis, in 2010 the Polish government cut the share going into the private accounts by more than 60%, to 2.8% of wages from 7.3%. Taking this a step further, the Polish government now proposes, through what has been called the “Tusk Plan” effectively to kill or seize what’s left and take the money for the government. As of now, the government appears to have the votes to do just that. If the bill becomes law, the pension grab will start by transferring all government bonds held in these retirement accounts—more than half the total assets—to the state, which will cancel them. In return, savers will receive higher payouts at retirement from the unfunded, pay-as-you-go public pension program. In other words, the Polish government will not be stealing the pensioners retirement funds, but will simply be exchanging the bonds for payouts from the pension system. Even though these actions appear like a seizure, they are more akin to an exchange.
As for the rest of the assets, other than the bonds, the Polish Government would call for for investors to start handing over their equities to the state in stages starting 10 years before retirement. By the time they retire, their account would be empty and they will have to receive their pension from the pay-as-you-go system.
The “Tusk Plan” is essentially a plan to help Poland reduce it’s debt load but it would potentially place the Polish workers who had their income minimized throughout their career in order to fund the public pension system at a financial disadvantage at a time when they most need the funds.
Can this happen in the US?
A seizure of private pension plans from U.S. works would be much harder if not impossible since American employees participate in pay-as-you-go type pension plans and not public pension plans. In addition, the majority of U.S. pension funds are invested in U.S. equities and not U.S. Treasuries, unlike Poland. In addition, with the U.S. workforce aging and retirees turning 701/2 and beginning to take required minimum distributions, the U.S. Treasury will begin receiving considerably tax revenue from U.S. retirement accounts.