The Only Thing in Life That Stays Constant is Change! Let’s see what is in Store for Us with Our Retirement Plans for the Coming Years.


The Only Thing in Life That Stays Constant is Change! Let’s see what is in Store for Us with Our Retirement Plans for the Coming Years.



America is facing monumental record debt numbers. Our government continues to borrow and print money like there is no tomorrow. Are you alarmed by this? I am.

We are not resolving the debt crisis as the House and Senate are just letting our government borrow us into more and more debt. We have the Obama Care staring us in our eyes and soon we will likely to take up the following proposals, all of which would have lasting effects on how anyone will be saving for retirement.

1. Automatic Enrollment in IRAs

The president’s 2014 budget would require employers in business for at least two years that have more than 10 employees to offer an automatic IRA option to employees.

How this will work will be contributions would be made to an IRA on a payroll-deduction basis. If an employer already offers a plan, it wouldn’t have to comply with this regulation, but if its current plan excludes certain segments of its employees from participating in the plan, the employer would have to begin to offer the automatic IRA to those excluded employees..

Do you remember when Exxon showed us the commercial with a Tiger and people would get a discount if they poured their own gas into their cars. Well the Oil Companies set us up for later putting our own gas into our tanks. They set us up to pour our own gasoline without a discount. Now do you think the government is setting us up too? Obama included this provision in the 2014 budget because he wanted to turn the tide on a rising retirement crisis in the United States. According to a Treasury report, the number of U.S. workers participating in an employer-sponsored retirement plan has remained stagnant for decades at no more than about half the total workforce. Will Social Security be around for us….for the next generation?

The administration has seen that automatic enrollment efforts can be very effective in raising the number of people participating in workplace retirement plans and believes that by forcing small companies to offer automatic enrollment in an IRA, the number of people saving for retirement will rise. But I say so will the cost to the employer. Question folks—If the employer can be held at fault if two workers earning the same amount but one invests in bonds and the other in a balanced portfolio and one out performs by a wide margin. Is the employer being set up for a law suit?

Under the proposal, employers could help their workers save without having to make contributions to the plan or having to comply with the Employee Retirement Income Security Act. All they would have to do is make their payroll systems available to transmit employee contributions to an employee’s IRA.

Employers with fewer than 100 employees that offer an automatic IRA could claim a temporary credit for expenses associated with the arrangement of up to $500 for the first year and $250 for the second year. They also could be entitled to an additional credit of $25 per enrolled employee, up to a maximum of $250 for six years.

If employers adopted a new qualified retirement, SEP or SIMPLE plan, they would receive a tax credit for their startup costs that would be doubled from the current maximum of $500 per year for three years to a maximum of $1,000 per year for three years.

2. Elimination of Stretch IRA

The Obama budget would eliminate the stretch IRA that allows beneficiaries to stretch the proceeds from an inherited retirement account over their lifetime. This means a non-spouse beneficiaries of retirement plans and IRAs would have to take full distribution of their inheritance within five years of the account holder’s death. Why is this important to know…you the tax payer cannot hold onto the inherited funds till you are 59 ½ or latest 70 years old to begin distributions. The government will get their tax share faster. Now thank our government for 2008 and beyond bailouts. Funny thing no one asked me if I needed to be bailed out or if I approved of them bailing out Merrill Lynch or General Motors.

The only exceptions would be disabled or chronically ill individuals, someone who is not more than 10 years younger than the participant, or an IRA owner or a child who has not reached the age of majority. Those individuals would be allowed to take distributions from the deceased person’s retirement plans over the life or life expectancy of the beneficiary beginning in the year following the death of the participant.

If the beneficiary was a child at the time of the participant’s death, they would have to take a full distribution within five years of coming of age.

If beneficiaries are forced to take distribution of large sums of money early, they will be taxed at a higher rate than they would be if they could leave the funds in the participant’s account and take money out gradually.

3. A $3.4 Million Cap

The president’s proposed cap on retirement savings has garnered the most attention this year. The cap would raise about $9 billion for the federal government over the next 10 years by prohibiting taxpayers from taking advantage of the pre-tax deferral in their 401(k) or defined contribution pension plans after they cross a $3.4 million threshold. According to the Employee Benefit Research Institute, only a small percentage of IRA and 401(k) investors would be affected by the cap. In 2011, only 0.06 percent of total IRA account holders had $3 million or more in their accounts, and only 0.0041 percent of 401(k) accounts had that much money in them at the end of 2012.

The $3.4 million cap would allow an account holder to generate an annuity of $205,000 a year.

Small-business owners would be the biggest losers in this proposal, according to Judy Miller, director of retirement policy at the American Society of Pension Professionals & Actuaries.

Why you ask? That’s because company-sponsored retirement plans are the only way small-business owners can generate tax-deferred savings.

Workers might be hurt, too, even those with nowhere near $3.4 million in their accounts.

Brian Graff, executive director and CEO of ASPPA, said he is concerned that “without any incentive to keep the plan, many small-business owners will now either shut down the plan or reduce contributions for workers. This means that small-business employees will now lose out not only on the opportunity to save at work but also on contributions the owner would have made on the employee’s behalf to pass nondiscrimination rules.”

4. Social Security COLA

The president also proposed changing the way inflation is measured to shrink cost-of-living adjustments for retirees receiving Social Security benefits. The use of a chained consumer price index for Social Security and other programs, like Supplemental Security Income and veterans pensions, would reduce government deficits by $230 billion over 10 years. A chained CPI is a lower measure of inflation, which would reduce Social Security and other benefits by $130 billion. AARP asserts that these cuts would have a catastrophic impact on older Americans who are the least able to absorb cuts to their benefits because they rely on Social Security for their income and have higher out-of-pocket medical expenses. They also have a higher poverty rate than younger Americans

Let me leave you with this thought…for some of you the pain of high inflation in the 1980’s was devastating. We are facing what I believe is an inflationary cycle. We are printing money and nothing to back it up. How long can we keep interest rates down? How long can China buy our Treasuries? What will the stock market do when inflation rears up its ugly head? Do you know what happens when we have high interest rates and how it effects the stock market?

I have answers to all these questions. If you are concerned about the future and what to do. Let’s talk.

Mark S. Gardner may be reached at 214-762-2327