Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Innovation Investing Conference
    • 2022 Defined Contribution East Conference
    • 2022 ESG Investing Conference
    • 2022 DC Investment Lineup Conference
    • 2022 Alternatives Investing Conference
Breadcrumb
  1. Home
  2. Print
November 01, 1999 12:00 AM

A FLAWED PROPOSAL

Mike Clowes
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    , Editorial director

    Here's a great idea: Why doesn't the government provide pensions for the poorest Americans? And here's a painless way to finance them: Impose a 5% tax on the earnings of qualified pension plans.

    That's what Daniel Halperin, a Harvard University law professor, and Alicia Munnell, professor of economics at Boston College, proposed at a Brookings Institution conference on ERISA. We have some problems with that idea.

    As reported in the Oct. 18 issue of P&I, the professors argue that since excluding those earning $20,000 a year or less from corporate plans would save employers money, it would be appropriate to help offset the government's costs by the tax on investment earnings.

    Building on President Clinton's Universal Savings Account proposal, Mr. Halperin and Ms. Munnell propose that the government make an automatic contribution in the form of a refundable tax credit deposited directly into the USAs of workers earning $20,000 a year or less.

    The government's contribution alone, when combined with what the worker would receive from Social Security, would provide full replacement for pre-retirement earnings.

    But the plan has a few more wrinkles: only those earning $20,000 or less a year could be excluded from a company pension plan for any reason, and all employees would have to be covered by the same provisions; full vesting would be required after no more than one year; and all lump-sum payments would have to be rolled over into an IRA, with all plans required to offer an inflation-indexed annuity.

    To encourage employers to adopt these provisions, they propose boosting the maximum benefit payable under a defined benefit plan to $190,000 a year from $130,000 and boosting the maximum includable compensation to $255,000 from $160,000.

    These proposals are problematic. A 5% tax on corporate defined benefit plan investment earnings would increase their costs and accelerate their decline. If the tax also applies to the investment earnings of defined contribution plans, as seems likely, then it becomes a far more complex collection problem. Would the tax apply to unrealized as well as realized earnings?

    We suspect it would. That means plan administrators might have to liquidate holdings to pay the tax, or individuals would have to pay it in cash. Either way, the tax would give employees another excuse not to participate in their 401(k) plan.

    Finally, a 5% tax on investment earnings is just the camel's nose under the tax-exempt tent. The professors estimate it would raise about $15 billion of the estimated $80 billion cost of the USA proposal. How long would it be before that tax went to 10% or 15%?

    In addition, the proposed incentive is unlikely to provide any incentive to top management in big companies. They already have taken care of themselves through non-tax-exempt top-hat plans. And management at small companies generally doesn't earn enough to take advantage of the higher limit.

    But perhaps the professors' real agenda is to kill off the private pension system. Ms. Munnell in the past has made no secret of being no fan of the system and has proposed taxing it before.

    Be that as it may, lower-paid workers do need better pensions to supplement Social Security. But rather than risk harming the private pension system by taxing it, why not find the money by asking government to be more efficient? Surely the government can find $80 billion somewhere in its trillion-dollar-plus budget. For a start, how about cutting back on research programs at places such as Harvard and Boston College?

    Let's look at a bunch of possibilities, not just tax of the private pension system.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    Alternatives: Investing Across the Spectrum
    Sponsored Content: Alternatives: Investing Across the Spectrum

    Reader Poll

    May 9, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Are Factors a Thing of the Past?
    Q2 2022 Credit Outlook: Carry On
    Leverage does not equal risk
    Is there a mid-cap gap in your DC plan?
    Out of the Shadows: The Revolution in Shadow Accounting
    The pivotal role of fixed income markets in the ESG revolution
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    May 9, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Innovation Investing Conference
      • 2022 Defined Contribution East Conference
      • 2022 ESG Investing Conference
      • 2022 DC Investment Lineup Conference
      • 2022 Alternatives Investing Conference