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Friday, May 23, 2014

The Washington Post reports that Senator Marco Rubio (R-FL), a Tea Party favorite and staunch conservative legislator, has proposed opening the Federal government’s Thrift Plan to all Americans who do not have the opportunity to participate in an employer-sponsored retirement plan.  The fact that a conservative Senator is expressing an interest in expanding government is surely paradoxical and confusing.  But what really comes from this ill-conceived notion is the obvious lack of sound retirement policy in Washington.

According to a recent survey, the number one concern of Americans is not health care or health care costs, it’s not unemployment, and it’s not a failed immigration policy.  It’s having money on hand in a sufficient amount to be able to retire in a dignified and proper manner.  Democrats and Republicans alike don’t seem to get this.

Congress views retirement plan deductions and deferrals as some sort of budget game.  Republicans (see the Camp Tax Overhaul) and Democrats (see the Obama Budget) have recently proposed methods of diminishing savings by reducing attendant tax benefits.

President Obama seems convinced that the current structure primarily benefits the wealthy.   So, in his 2015 budget proposal, he suggests putting caps on retirement savings apparently not realizing that most of the rules pertaining to tax-qualified plans do just that and provide consequential limiting opportunities for higher paid Americans.  Are the President’s proposed caps good retirement policy or simply efforts to enhance the Federal treasury?

And he proposed, and is implementing, the myRA program that now seems like something conservative Republicans such as Senator Rubio must surely support even though it is not part of an integrated retirement policy and creates yet more government and more bureaucracy.

Representative Dave Camp’s (R-MI) proposal is part of a tax overhaul package.  Of course, it must involve retirement plan deductions and deferrals.  Like the Democratic budget proposal, he, too, wants to chip away at the tax benefits.  His proposal doesn’t seem to “blame” the wealthy for getting too much of a good thing.  It more clearly is intended as a simple revenue raiser.

Money Puzzle

By including retirement plan tax savings opportunities in the same mix with principal residence interest expense deductions, health care expense deductions and exclusions, and charitable contribution deductions as so-called “tax expenditures,” Congress is reaching for revenue while ignoring a sound retirement policy.  After all, those retirement plan deferrals and their inherent capital gains are taxed as ordinary income later while the government never recoups the “loss” from the other “tax expenditures,” as we have discussed before.   ASPPA’s Brian Graff recently pointed out that there is no committee in either the House or the Senate that has all the pieces in one place to establish a retirement policy for America.

Both the President’s budget proposal and the Camp tax overhaul have something that both Republicans and Democrats seem to share – a lack of understanding of a sound retirement policy even though funding for retirement is the primary concern of Americans.  Both proposals beg the question:  if you take away the already restricted opportunities for business owners to save on a tax-advantaged basis, won’t you further limit the opportunities for their employees?

The result seems to be that legislators like Senator Rubio appreciate that there is a problem. Is there resolution in greater bureaucracy or is there resolution in creating a sound policy that enhances the employer-sponsored system?  It would appear that both liberals and conservatives seem to opt for the former.  But no one in Washington seems to be focusing on a sound, integrated retirement policy.  Senator Rubio’s proposal and the Presidents’ myRA might be viewed as band aids on a large wound.  So what should really happen?

Congressional leaders should create committees in each house dedicated to studying and proposing a viable retirement policy for the country taking all aspects of retirement policy into account, such as:

  • The federal tax implications of retirement policy along with a review of ERISA that would result in ways to bring more Americans into the employer-sponsored structure without creating more complexity and burden on employers.
  •   Proposals for funding financial education in schools so participants better understand how to save wisely and use the tax and employer benefits afforded them.
  • Fiduciary safe-harbors that protect plan sponsors, plan administrators, and trustees/custodians while being protective of the rights of participants.
  • Simplifying the defined contribution requirements that chase small business owners away from the system.
  • Analyzing and promulgating appropriate means of creating lifetime income options in defined contribution plans.
  • Most importantly, removing the retirement plan arena from the “expenditure” definition, and instead budget for “loss” and “income” from retirement plans in a realistic manner rather than with the smoke and mirrors that permeate Congressional budgeting today.

All of this and more is needed to design a retirement policy best suited to the concerns of most Americans.  What would you have them address?

 

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