12, 2013 (PLANSPONSOR.com) – Since the release of the proposed fiscal year 2014
budget by President Barack Obama, there have been differing opinions on how
retirement-related provisions will potentially affect retirement savings.
The proposed budget would place a cap on retirement savings,
prohibiting employees from saving more than $3 million in individual retirement
accounts (IRAs) and other retirement accounts. Analyses from the Employee
Benefit Research Institute suggest that up to 5% of retirement plan
participants could be affected by this cap (see “Savings
Caps Could Affect 5% of Participants”).
The budget would also place a cap on how much could be
deferred on a pre-tax basis, taxing participants' savings before they are put into retirement
plans, but not eliminating the taxation of assets when they are withdrawn from
Small Business Owners Will Be Limited
“We were very
concerned when last year’s budget included a double tax on contributions to
401(k) plans. Small business owners earning over $250,000 would have to pay tax
on contributions in the year the contributions are made then pay tax at the
full rate when contributions are distributed at retirement,” said Brian H.
Graff, executive director and CEO of the American Society of Pension
Professionals & Actuaries (ASPPA). "We were hoping this misguided proposal
would be eliminated in this year’s budget, but instead the Administration has
kept the double tax proposal, and added another penalty for retirement savings."
“Now, if a small business owner has saved $3
million in his or her 401(k) account, they won’t be allowed to save any more.
Without any further 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,” said Graff.