What is the future of our retirement plans?

Marijoyce Ryan, The Daily Record Newswire

We all know that as a nation our debt is a major topic among individuals, companies, lawmakers, etc. There are ways to reduce the debt: cut spending, raise taxes, add new taxes, and tap into other resources — such as retirement plans.

Currently, contributions to 401k plans are tax-deferred for participants and employers can make contributions and deduct these amounts from their business taxes. These tax breaks amount to about $100 billion a year.

This means that well over $400 billion will be the cost to the government from 2013-2017. That is more than the mortgage interest tax deduction.

Retirement plans are once again being looked at as a means of raising revenue. This has happened previously, most notably in the 1980s with the enactment of TEFRA — the Tax Equity and Fiscal Responsibility Act, along with a few other pieces of legislation.

It reduced the maximum dollar amount that could be contributed each year and also reduced the maximum annual benefit under defined benefit pension plans. Contributions to 401k plans were reduced from $30,000 to $7,000. Finally, compensation that could be considered for purposes of computing retirement benefits was reduced from $235,000 to $150,000.

The above changes did not occur in one year but were scaled in over a period of time. Nonetheless, the lack of deductions over time helped increase revenue to the U.S. government.

With our national debt increasing from $5.6 trillion in 2000 to over $16 trillion in 2012, all sources of revenue are being considered. For a few years I have been telling clients to take full advantage of their retirement plans and invest appropriately as these plans might be targeted again in the future.

Social Security is subject to future changes including an increase in the retirement age and means testing for benefits. Also, many companies have frozen or eliminated traditional pension plans.

At a time when we are all being asked to do more with less one would think that the government would be doing as much as possible to encourage, not inhibit, retirement savings.

Andrea Coombes, the retirement columnist for The Wall Street Journal’s Marketwatch site, recently wrote: “Some say it’s inevitable lawmakers will at least look at limiting the tax benefits of such plans.” Some employers may stop offering 401k plans if benefits are cut for higher-earning employees, she added.

One proposal being consider is called the 20/20 plan. Currently, employees can contribute up to $17,500 in 2013 to their 401k plan, and up to $23,000 for those who have attained age 50 and older. The proposed 20/20 version would limit both employee and employer to a maximum of $20,000 per year or 20 percent of your salary — whichever is less (including the employer match).

So, the best advice is to save as much as you can in your 401k and/or IRA and invest the funds in an appropriate mix of stocks and bonds based on your age, time horizon and risk tolerance. We all need to take responsibility and learn about the importance of saving and investing.

The American Society of Pension Professionals and Actuaries has launched an online petition called “Save My 401(k)” which lets you email your concerns to your members of Congress.


Marijoyce Ryan is vice president of Fiduciary Services for Karpus Investment Management in Pittsford, N.Y. She can be reached at (585) 586-4680.