After the election…

Predictions about changes in taxes are coming out now; here are my thoughts and reactions to some articles I’ve read:

  • “Tax expenditures” for retirement plans are huge; the second-largest after the employer deduction for health insurance.  But I wouldn’t look for a major overhaul in the system; maybe a reduction in limits as part of an overall “shared sacrifice” concept but nothing too dramatic.  We have good lobbyists (for better or worse) and the taxes “lost” as a result of retirement plan contributions are deferred, not eliminated, and it seems that message is getting some traction.  The “401(k)” brand is such a part of everyone’s lives that I don’t see it being eliminated or significantly scaled back.  (Now, if you want to talk about reality, there are an awful lot of folks who are “covered” under the 401(k) system but will wind up with relatively insignificant benefits, and they might have been better under some other system, or no system at all; at least they wouldn’t have the illusion of being “well” covered.  But that’s a different discussion.)
  • I read where the Department of Labor is planning on re-introducing a fiduciary rule – that’s primarily going to affect investment providers and I wouldn’t consider that a major issue for sponsors or administrators.  And they’re likely to push for encouraging payouts in annuity form, at least by forcing us to put projected annuity benefits on statements.  It’s a nuisance and it’s stupid*, but mostly just an inconvenience. *Somebody over there has an obsession with lifetime income – they think that our retirement plan system’s problems will be partially solved by forcing or encouraging lifetime income streams.  But that doesn’t do anything when there’s not enough money to start with, and that’s the real issue.  And, encouraging participants to buy annuities now, when interest rates are near zero, is, well, stupid, since that means locking in historical low rates for life when everyone expects rates to increase.
  • I don’t see anything major coming from the IRS.  They’re handcuffed by funding issues, and more and more seem to be taking a hands-off approach.

Having said that – all bets are off as the fiscal cliff approaches.  There will be intense pressure to raise revenues, and, like Willie Sutton is supposed to have said about his reason for robbing banks, “that’s where the money is.”  Cutting retirement plan contribution limits is a way to raise revenue without raising rates.