Politicized climate may see retirement programs under attack

While a flurry of recent, presidential-level focus on America’s retirement system might be a good opportunity for dialog on its shortfalls, those in the retirement industry fear that a new era of potential tax grabs is on the horizon.

Speaking March 23 at the National Association of Plan Advisors’ 2014 401(k) Summit in New Orleans, Preston Rutledge, senior tax counsel to the Senate Finance Committee, says he believes that the current political climate is leaning more and more in favor of a nationalized retirement system – to the detriment of a considerable private industry that has developed in the post-DB world.

Rutledge says he’s concerned with recent sentiment – underlying President Obama’s own MyRA proposal – that 401(k) and other well-established tax-deferral retirement programs are increasingly perceived as yet another tax benefit for the rich, and not of benefit to average Americans.

“There’s a lot of folks who think it would be better if the government ran the retirement system,” Rutledge says. “And what is it that folks who make these plans want to see?” he asked. “The narrative laid out in the State of the Union address helps make those proposals. And we’re also seeing more than a dozen states with their own state-level retirement plan initiatives. The Democrats see this as an issue.”

Rutledge says he remains fascinated by the MyRA proposal but is working with his boss, Senate Finance Committee Ranking Member Orrin Hatch, on the SAFE Retirement Act, a parallel proposal which emphasizes starter 401(k) plans for emerging businesses and continues to use the workplace 401(k) as the critical tool for retirement savings.

“The key to coverage is to focus on the employee, and the way people save is when they have a plan at work,” he notes. “Take-up rates are still in the mid-80-percent range, but [almost] 25% of employers still don’t have 401(k) plans. We need to get them in the game. Should we mandate it? That might be simple, but it doesn’t make [savings] easy to do. It’s time to have that conversation.”

Rutledge adds that recent focus to set limitations on massive IRA earnings – as personified, with significant negative PR for recent presidential candidate Mitt Romney – also serve to illustrate the sentiment that tax incentives exist primarily for the wealthy.

“Income inequality will be solved when more people get work, not by going after the 401(k) system,” he adds. “The problem of income equality has not been caused because a wealthy person has access to an IRA or a 401(k). “Why would we want to penalize or discourage people from making good investment decisions [in their IRA]?”

On the DB side of the table, Rutledge suggests that upcoming attempts to modify or nullify the pension benefits of workers and retirees in troubled Detroit will also be a precedent-setting move, as will ongoing attempts by the bankrupt California city of San Bernardino to avoid its obligations to California’s massive state pension system.