Wednesday, July 10, 2013

Tax Reform, Hatch and Starter 401(k)'s

On a morning where I read one of the scariest ideas I've seen come from Congress in my adult life, the so-called "Blank Slate" idea on Tax Reform from Senator's Baucus and Hatch which more/less calls for a complete "Do Over" on U.S. taxes, I also saw the separate ideas put forth by Senator Hatch in his introduction of the SAFE Retirement Act of 2013.  

Some thoughts on each of these.

The Blank Slate -  linked here

The general idea is that the U.S. Tax code is broken, it is riddled with exclusions, deductions and credits and caters to special interests.  It needs to be fixed, and needs to be simplified and clear out all of the unproductive provisions.  They say that their goal is to: (1) help grow the economy (applause!), (2) make the tax code fairer (whatever that means.....), or (why not AND?!) (3) effectively promote other important policy objectives.

They put out a bunch of noise about percentages, blah blah blah.   Here's what frightens me.

Blank Slate means the elimination of ALL special provisions, exclusions, deductions and credits and then add back in only the one that meets one of the above 3 goals.  This do over approach will almost certainly hurt lots of individual tax payers and because of #3, will almost certainly allow for all of the Special Interests to get back what they want in the name of "promoting other important policy objectives", Who's policy are they talking about?  I'm guessing that it is isn't mine.......Oh yeah, since this is a 401(k) blog, 401(k) Elective Deferrals are 'exclusions, deductions and credits', thus would be eliminated and may or may not be added back......

As I started to consider taking all of my money out of the bank and stuffing it in my mattress, I saw this other idea come across my desk, and it is a peach.  Truly, a lot of good ideas in this one and it came from, wait for it......Senator Hatch, one of the co-authors of the aforementioned Blank Slate!!! 

SAFE RETIREMENT ACT OF 2013- His introduction linked here.

The provisions of this submitted legislation would have mainly positive benefits to the Retirement Plan industry, would allow for greater coverage and greater savings levels.  In general, I'm in favor of these provisions listed below:

The bill would:
• create a new safe harbor deferral-only “Starter 401(k)” plan with automatic enrollment and an $8,000 deferral limit (plus a catch-up for those age 50 and over) for employers that do not have another retirement plan

• allow employers to adopt a qualified retirement plan on or before the due date, with extensions, of the employer’s tax return

• allow employers to replace SIMPLE retirement accounts with a safe harbor 401(k) plan during the year

• remove the arbitrary 10% auto-escalation limit on elective deferrals under the existing automatic enrollment safe harbor

• permit required interim amendments to qualified retirement plans to be made in conjunction with the plans’ restatement cycle

• allow plan sponsors to make electronic delivery of retirement plan documents the default option

• direct the DOL to modify its new participant disclosure regulation so that an investment that uses a mix of asset classes can be benchmarked against a blend of broad-based securities market indices

• allow individuals to roll over insurance contracts into individual retirement accounts

• allow required minimum required distributions to be rolled over into Roth IRAs

The legislation would also restore jurisdiction over the fiduciary rules in the tax code to the Treasury Department, and would require Treasury officials to consult with the SEC in prescribing rules relating to the professional standard of care owed by brokers and investment advisors to IRA investors — thus adding yet another element to the debate over a new, broader fiduciary standard.

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