Argentina's pensions

La Presidenta is trying to get her hands on private pension monies to bail out her government.

Congress has yet to approve Argentine President Cristina Kirchner's move to seize $28 billion of retirement savings to fund her cash-strapped government, but already the plan has produced a thicket of problems. One troubling reaction: Argentines are cashing their peso bank accounts and lining up to buy dollars at crowded exchange houses. The peso fell 7% last month, prompting the central bank to spend at least $1 billion to defend it.

Memories of the 2001 crisis remain.

Many view Mrs. Kirchner's pension move last month as a sign of desperation that could presage other unorthodox policy decisions. Memories of the government's decision to freeze deposits during the last crisis are still fresh.

Aside from Argentinians themselves, others are troubled (that is, scared) be Cristina's reaching for the pensions.

Mrs. Kirchner's plan has stirred trouble outside Argentina as well. This week, a U.S. judge froze up to $1.6 billion held in the U.S. by the Argentine pension funds that Mrs. Kirchner is hoping to nationalize. U.S. bondholders are suing to recover money they lost when Argentina defaulted during the last crisis. Mrs. Kirchner had ordered the pension funds to repatriate overseas assets ahead of the nationalization.

Nice and subtle, eh? Repatriate it, and then it'll be nationalized.

Argentina ran out of money in 2001 and committed history's biggest sovereign-debt default. The commodity boom brought a brief recovery, but the boom is over, and left the nation saddled with debt. Faced with at least $11 billion of debt payments next year, Mrs. Kirchner wants to raid the accounts to avoid defaulting while maintaining politically sensitive welfare payments, analysts say.

Pork-barrel, earmarks, call it what you will, it's a global practice.

Argentina's privately managed pension system was set up in the mid-1990s, and the accounts were devastated in the 2001 crisis. Mrs. Kirchner says she is nationalizing the accounts to protect them from market volatility.

O, right: gimme the money, I'll protect it. Does a bridge come along with it?







Employees of private pension companies protest the government's plan to nationalize pension funds in Buenos Aires last week. President Kirchner defends her plan as a way to protect money from the global financial crisis.

Do You Have a Retirement Parachute?

A continuing focus for me: retirement funds. This year has been tough already.

Neither your employer nor the mutual-fund company that manages your money is required to note that, if you're not covered by a defined-benefit plan, your 401(k) should equal at least 10 times your salary right before retirement. If you're earning $100,000 at age 65, a $1 million nest egg isn't a windfall; it's a necessity. Even more improbably, a 65-year-old making $40,000 a year ought to have accumulated $400,000.

Improbably? For many, I suppose.

Adding to the pain of near-empty nest eggs is the fact that the income taxes on the portion of salary contributed are postponed until retirement – when folks can least afford to pay them.

A final reckoning: pay taxes when retired.

If pension-less taxpayers are obligated to foot the bill for generous public-sector pensions, the employers who escaped from their obligations to provide "voluntary" pension plans should bear responsibility for their employees. We need federal legislation to shift the burden of financing pensions back to the employer, where it belongs.

Excellent point. When I was with MetLife in the 1990s, it began to do away with defined benefits in retirement, and moved to defined contribution plans.

The pension paternalism favored by the Democrats has failed because pension regulations make the requirements so onerous that few companies want to start or continue a defined-benefit plan. On the other hand, the Republicans' tax-break approach to retirement savings has failed because people haven't responded to savings incentives.

Australia has managed to create a compact between employers and employees. We should be able to do at least as well.