Budget Proposal Could Create Administrative Headache

May 3, 2013 ( - President Obama’s proposal to cap individuals' retirement savings not only has the potential to affect participants — it could also add administrative work for sponsors and advisers. 

By Corie Russell | May 03, 2013
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The proposed fiscal year 2014 budget would place a cap on retirement savings, prohibiting employees from saving more than $3 million in individual retirement accounts (IRAs) and other tax-deferred 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 “SavingsCaps Could Affect 5% of Participants”).

“I don’t think it would have any impact on the bigger companies,” Richard Del Monte, president of Del Monte Group LLC, told PLANSPONSOR. “They just adjust and move forward.”

He said, however, the impact on small businesses could be significant. Dentists and doctors with a staff of five people or fewer, for example, may stop offering a retirement plan altogether if the proposal passes, because their personal deductibility—which Del Monte said is huge for them—would be affected.

The proposed budget could mean that small-business employees will lose out on the opportunity to save at work, as well as contributions the owner would have made on the employee’s behalf to pass nondiscrimination rules, said Brian H. Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries (ASPPA) (see “Budget Proposals for RetirementSavings—A Deterrent or Not?”). 

As a result in a loss of benefits, employers could lose highly skilled workers to other companies with a more competitive offering, Del Monte added.

But some sources like Lee Topley, managing director of Unified Trust, do not think the budget provisions would encourage job switching because these restrictions would be everywhere. He thinks the $3 million cap will only affect a small percentage of participants, but it is too early in the proposal to make definitive conclusions.