The Attack Against 401(K) Retirement Savings Continues

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It appears that there is yet another underlying attack Americans in their effort to properly save for retirement. The reports in the week of October 20 indicated a Republican plan to limit the deductibility of annual retirement contributions into 401(k) plans. Then President Trump shot down this idea in a tweet on Monday, October 23. But it appears that the House of Representatives may still be weighing adjustments to how much Americans can save for retirement in qualified retirement savings plans.

U.S. Congressman Kevin Brady, a Republican representing the 8th District (Conroe, Texas), is the Chairman of the House Ways and Means Committee. According to the Washington Post and The Wall Street Journal, Brady indicated in a Christian Science Monitor breakfast that Republicans continue to weigh adjustments to 401(k) plans as part of a tax-code change.

There is a serious problem here: Americans are already very much behind the eight-ball when it comes to having saved up for retirement. Many people in their 40s and 50s have literally saved only a few thousand dollars, and even if that was magically bumped up to $200,000 the figure is far too low for most people to be able to afford anything that would resemble an adequate retirement.

What the public needs to be alarmed about is that it is already hard for many Americans to adequately save enough money for retirement. Every taxpayer pays handily into Social Security, and the new retirement age of 67 implies that anyone under 50 pays into Social Security for about 45 years.

The tax-deductibility incentive under 401(k) and traditional IRA plans are meant to entice Americans to save on their own for retirement. This allows the money to grow without being taxed until it is accessed down the road. If you take away the incentive now, it is without question that results in less savings. It also means that the government is hell-bent on taxing today without consideration for the future.

As American companies have the highest corporate tax rates of all developed nations, those corporate tax rates need to come down. If they are coming down and being funded by the likes of every person who wants to save for retirement, then this technically is corporate welfare.

Most sensible people understand that there has to be some give and some take for any deal to work for the greater good. What many people who are key in making policy fail to consider about saving for retirement is that there are already too many restrictions on what can be contributed into retirement plans for many Americans. 401(K) plans are subject to tests about which participants and owners can contribute, and there are restrictions on income limits that can prevent certain IRA contributions.

Congressman Brady may head one of the most powerful committees in Congress, but he is by and large unreachable considering this position. Congressman Brady’s contact page on his official website says:

I am very interested in hearing your views on issues of importance to you. Due to the large volume of US Mail, email, phone calls and faxes I receive, I am only able to accept messages from residents of the 8th Congressional District of Texas. Congressional courtesy dictates that Representatives be given the opportunity to assist their own constituents. If you are a resident of another district, I encourage you to contact your Representative in Congress …

When President Trump rejected the idea of lowering current savings limits, he said:

There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!

24/7 Wall St. recently showed how every single person in their 20s and 30s can somewhat easily save up $1 million by the time they retire. We also showed how every other type of saver can work toward that goal of $1 million saved. Limiting 401(k) plan contributions, and perhaps traditional IRA contributions, will kill the ability for people to come anywhere close to adequate retirement savings.

Most younger employees can no longer count on company pension plans to take care of them after retirement. It’s a given that the caps in Social Security are only going to be a supplement to fund your retirement as well, and we already know that many legislators already want to lower or restrict Social Security benefits ahead.

The Employee Benefit Research Institute’s EBRI/ICI Participant-Directed Retirement Plan Data Collection Project is said to be the largest and most representative repository of information about individual 401(k) plans in aggregate, but its data even in 2017 comes with a big look-back period. As of December 31, 2012, the EBRI/ICI database included statistical information about 24 million 401(k) plan participants covering some 64,619 employer-sponsored plans and representing $1.536 trillion in assets. This is said to cover 46% of the universe of 401(k) plan participants, more than 10% of plans and 44% of 401(k) plan assets.

Another report comes from BenefitsPRO showing that U.S. retirement assets hit $24.9 trillion (including corporate and government pensions) as of the end of March 2015. It also indicated that retirement assets accounted for 36% of household financial assets. Of those assets, IRAs accounted for the greatest share of assets at $7.6 trillion. Also, defined contribution plans held $6.8 trillion, $4.7 trillion of which was held in 401(k) plans.

Unfortunately, lawmakers are continuing to play their hands close to their chests when it comes to what tax reform really will look like. We can only hope that financially responsible retirement savers aren’t the ones paying the biggest price here.