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Biden's plan to overhaul 401(k) tax breaks could force some companies to cut retirement benefits

By Eric Holder follow Eric Holder   2020 Oct 16, 12:43pm 102 views   2 comments   watch   nsfw   quote   share    

A frequently overlooked part of Democratic presidential nominee Joe Biden's platform would upend the traditional tax preferences of retirement accounts like 401(k) plans — a change that industry experts warned could force some small companies to cut those benefits.

Biden has vowed to convert the current deductibility of traditional retirement contributions into matching refundable credits for 401(k)s, IRAs and others.

The proposal from the former vice president is intended to level the playing the field of tax deferral in traditional retirement accounts, with the intent of boosting saving among low-income earners. But industry experts cautioned that by reducing the benefits that higher earners receive, the Biden campaign may have increased the likelihood of businesses abandoning those retirement benefits altogether.

"If you take the tax deduction away and reduce the tax benefit, without also addressing the nondiscrimination rules, you've blown up the bargain," Brian Graff, the CEO of the American Retirement Association, told FOX Business.

That's because employers who make contributions to a 401(k) must offer that same benefit to their workers. Under Biden's plan, business owners would have to reduce their own tax benefit, while continuing to contribute on behalf of their employees, which is expensive, particularly during a pandemic.

Some of those bosses — traditionally the higher-income earners — may lack the incentive to offer those retirement accounts if their tax benefit is slashed, Graff said.

"When you mess up that bargain, you're disincentivizing those small business owners from having that plan anymore," he said. "Not only is it unfair to those small business owners, it's going to reduce the likelihood that they're going to offer those benefits to their employees. And that's particularly acute in a challenging time like now."

"Tens of millions of people" could lose their plans as a result of the proposed change, Graff estimated. Small businesses, which would be the most affected by the new rules, employ roughly 58.9 million people, or 47.5% of the nation's workforce.

That sentiment was echoed by Paul Swanson, the vice president and head of intermediary distribution at CUNA Mutual Retirement Solutions. Small businesses are typcally privately owned, and the individuals making decisions about what retirement benefits to offer are the highly compensated employees who will be most affected by the overhaul.

"If they don’t have as much of a personal incentive to offer the plan, if you take away the incentive, but leave the burden, they may very well decide it’s not worth it for them to offer the plan," Swanson told FOX Business. "So I think there is some risk there. "

1   Tenpoundbass   ignore (14)   2020 Oct 16, 1:25pm     ↓ dislike (0)   quote   flag      

If I were King around here, I would restructure it.
To where your income is taxed before Retirement contributions, and your retirement account reconciles taxes owe for that year from any capital gains realized for the year.
You would be free to draw from it, any time after a vested period, say five or ten years. And there is no tax deduction, no fee, no fine, just withdrawing funds from your own retirement account, if you so choose.

Or you could keep it in until you retire, and after, and start drawing from it tax free. Because all of the taxes had already been sorted out .

401K are pump and dump operation for the Wallstreet goons to game. Build, Skim, pump and dump. The workers are always left holding the bag, and can't pull out or they will lose it all in fines and fees. It's the biggest con ever pulled on the working Americans. .I know a few retirees in the last 20 years, that was surprised, to learn. That monthly stipend they counted on, is almost 30% less because taxes is deducted when they get it. Capital gains taxes would have eaten up much less if it was paid as they went along.

Plus they would have had more control over economic down turns, to have the flexibility to pull out, when you have a Bush and Obama president that will freeze trades, and you can't pull out of your 401K easy. They allowed companies to burn through the investors money and piss it away. Only to bail out the bank executives.
Had people been able to say fuck this and pulled their money out, those companies that were too big to fail, could have just failed and we would have started with new blood.
Many workers would have had $500K the financial advisors would have had to work to get them to put it back in. Bush and Obama and the way our retirement system is structured, just makes it so easy for them to pluck all of the pigeons, every last one of them.
2   Ceffer   ignore (4)   2020 Oct 16, 1:39pm     ↓ dislike (0)   quote   flag      

In the olden days, incorporating professions and small businesses paid off pretty well because of the benefits, but eventually that was legislated out until incorporation became a money losing administrative and cost burden instead.

There used to be vesting schedules that could be used to employer advantage, because of predictable staff turnovers. The vesting schedules were eventually reduced, and the qualification windows upgraded, so that it became pointless for smaller employers to offer retirement plans with all of their bureaucratic expenses and administration, unless you were very large and employed executive classes. Also, a lot of employees would often want to tap their plans with turnover 'loans', which could create headaches and more administration, especially if they didn't pay their retirement plan loans back and got whopping penalties and taxes, which they would blame on the employers rather than the government.

Employees tend not to be grateful for anything that isn't immediate money in hand as opposed to prudent planning and deferred gratification. So, many small businesses and professions could drop contribution plans and there was no negative effect on employee morale. i talked with a financial planner who said he was surprised at the number of professionals and small business people who abandoned these retirement plans and went naked completely, and the most they would keep were personal IRAs and otherwise just save after tax money for retirement, or plan on the equity in their businesses at sale for retirement.

So, de-incentivizing these plans for employers just creates employers with no plans for anybody, including themselves.

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