SAN ANTONIO – Politics aside, tax reform is coming and it could well mean an overhaul of the pension system – including a government takeover.
That was the word Monday morning from noted retirement industry attorney Marcia Wagner, delivering the opening keynote as the 2013 Center for Due Diligence annual conference got under way here.
"We're in a material year for ERISA," Wagner told the audience. "We're at the beginning of a national debate about the nature of retirement. There are two streams being debated: tax reform and pension structure reform.
"The question is which will we have, and to what extent?" she said. "The answer will impact your livelihoods and the very nature of retirement."
Wagner, a former Harvard economics instructor whose clients have included the Mariana Islands, said the country is experiencing a retirement "catastrophe, slow-mo," and can no longer afford to leave these questions unaddressed.
"The easiest way (for legislators and policymakers) to deal with budget issues with respect to retirement plans is by raising and lowering the limits as societal needs dictate," she said.
The needs today, of course, are great, in light of the nation's swelling debt and so-called retirement crisis. The amount of "forgone" tax revenue attributable to 401(k) plan contributions between 2011 and 2015 has been estimated at $361 billion.
"This makes 401(k) plans an easy target for revenue-raising initiatives," Wagner said.
That explains the origin of one of several ideas to have surfaced lately: the Obama administration's proposed cap of $3 million on retirement accounts.
"It has a lot of legs," Wagner said, though industry opposition to the notion is high.
The Obama administration also has proposed what's being called the Buffet Rule, a tax reform that would impose an 11.6 percent tax on employer and employee plan contributions on high earners only.
Among other proposals getting attention and more likely to gain traction:
- The National Commission on Fiscal Responsibility and Reform's 20/20 cap, which would limit retirement account contributions to the lesser of $20,000 or 20 percent of compensation.
- A Brookings Institution proposal to tax all employer and employee retirement account contributions and provide a refundable tax credit deposited to retirement savings account.
Wagner sketched out several other leading pension reform proposals, including the Secure Plan Proposal, offered by the National Conference on Public Employee Retirement Systems.
The idea is to create state-sponsored cash balance plans for private-sector employees. What is undoubtedly the most controversial aspect of the proposal would leave states on the hook for funding shortfalls.
Still, "it's getting tremendous traction," Wagner said of the notion, in part because it would relieve employers of pension plan obligations.
