To the editor,
The ever-expanding debate on averting financial consequences in early 2013 has refocused attention on concerns that coveted 401(k) plans and IRAs, long considered the last bastions of private retirement savings which replaced pensions for most working Americans, may be tapped.
The plans may be slated for dramatic changes ranging from limiting deductions, to retroactive taxation and to possibly include a nationalization scheme by imposing government mandated plans on employers with savings allocated exclusively to Treasury bonds.
An Investment Company Institute study published this month illustrates that U.S. retirement assets at the end of second quarter of 2012 total $18.5 trillion. Two components are $3.5 trillion in IRAs and $5.1 trillion in 401(k) plans. These therefore present very tempting deficit-funding sources for the Obama administration to help close a spiraling budget gap that is approaching $20 trillion.
By restricting the deductions for monies flowing into these plans for the highest wage earners or as some reports have suggested, retroactively taking back already deducted amounts , plan assets could be reduced and resources effectively transferred through redistributive taxation back to government coffers to help pay down government debt.
In response to this threat, the American Society of Pension Professionals and Actuaries ( ASPPA) launched a national campaign in late November to educate the public known as “Save Our 401Ks.” With over 11,000 member firms consisting of broker-dealers and retirement plan service firms the campaign is part public lobbying effort and part a public education initiative.
Another organization; the Insured Retirement Institute (IRI) echoed these concerns pertaining to retirement annuities, announcing that, though the Administration’s proposal “does not explicitly call for changes in the tax status of annuities” for all, there are serious concerns including “... the elimination of certain tax incentives for retirement savings and new limitations on deductions for retirement contributions.” IRI is urging policy makers “to protect incentives in place for Americans to attain financial security in retirement, particularly by maintaining the tax-deferred status of annuities for everyone.”
These references are now becoming more relevant with the so-called looming “fiscal cliff” crises, and that also includes a well stated goal of the Administration’s budget plan to force employers to offer “mandated” retirement plans.
This discussion has been going on for some time. In 2010, Sens. John Kerry and Jeff Bingaman-D, New Mexico, proposed ideas that have been circulating in discussions and public hearings at the Treasury and U.S. Labor Department since which has been endorsed in the Obama administration’s 256-page budget proposal for fiscal 2013.
The centerpiece is an “Automatic IRA,” in which employers are directed to allocate an amount that equals 3 percent of a participating employee’s salary into a social security-type retirement plan that invests in U.S. treasuries and in which the federal government guarantees a 3 percent return. Smaller firms with 10 or less employees would be exempt. Even though tax credits to businesses would be provided for this scheme the concern is that this would add an additional cost burden on small businesses that would restrict job growth.
With nearly half of 78 million workers in the U.S. without work-based retirement plans, a drive to liberalize access to retirement assets funded by employers is now a distinct possibility for the coming year.
With the uncertainty of the outcome of negotiations in coming weeks and with a vulnerable economy the potential for government control of private retirement funds can fundamentally change how Americans save for retirement and this is unsettling for many savers and retirees.