President Barack Obama’s 2015 federal budget, unveiled Tuesday, calls for a 28% limit on retirement-related tax deductions and an overall cap on all retirement accounts, including pensions, that could bring in $1 billion per year in new tax revenue.
Based on current tax brackets, the 28% limit would reduce the tax advantages of retirement savings for people earning more than $183,000 or couples earning more than $225,000.
Brian Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries said the budget proposal’s “wrong-headed attacks on employer-sponsored retirement plans” amounts to a double tax on retirement and punishes contributions to 401(k) plans and the small business owners and their employees. “Who could blame a small business owner for thinking that if the government is going to penalize them for saving in a retirement plan, maybe they should not have that plan?” said Mr. Graff in a statement.
The overall cap for all tax-preferred retirement accounts would limit them to providing an annual retirement income of $205,000, which would currently cap tax-preferred accounts at $3.4 million.
Mr. Obama also called for $20 billion from increased Pension Benefit Guaranty Corp. premiums, although it was not clear whether that would come from single employer or multiemployer plans. However, according to the proposed budget, “Any further premium increases need to be carefully crafted to avoid worsening PBGC’s financial condition and harming workers’ retirement security by driving healthy plans that pose little risk of presenting a claim to PBGC out of the system.”
Unhappy with the proposal to allow the PBGC to set risk-based premiums, groups representing plan sponsors gave the administration some credit for recognizing the potential damage of continual premium increases.
“CIEBA is pleased that the administration recognizes that continual increases in PBGC premiums increase the risk that healthy DB plan sponsors will leave the system,” said Deborah Forbes, executive director of the Committee on Investment of Employee Benefit Assets, which represents 120 of the largest U.S. corporate pension funds with more than $1.5 trillion in retirement plan assets.
PBGC Director Joshua Gotbaum said in a statement that letting the agency raise or reduce premiums would “do it in a way that preserves retirement plans.”