I doubt Douglas Adams had retirement policy in mind when he said, “It’s not the fall that kills you; it’s the sudden stop at the end.” However, that quote explains why Congress should keep their mitts (hands, not a horde of Romney clones) off the employer-based retirement system as they try to solve our country’s economic woes.
The deficit is big. Really big. You just won't believe how vastly hugely mind-bogglingly big it is. Whether or not we fall off the fiscal cliff, the country’s financial situation will fall further into decline unless we reverse course and start living within our means.
It doesn’t take a babel fish to understand this means cutting spending and/or raising taxes. Although the Republicans and Democrats have different ideas about where the appropriate spending cut/tax increase balance lies, both parties recognize that it will take some of both.
This is where retirement policy enters the picture. Most contributions to retirement plans (such as 401(k) plans), whether made by companies or workers, are tax deductible. That means for every dollar that goes into a plan, the government collects a little less in tax revenue. When adding together all contributions made to all employer-based retirement plans, this tax deduction represents one of the largest in entire tax code. That makes the retirement system a prime target to increase tax revenue by reducing contributions.
While some in Congress and in the media suggest that reduced contributions would only hit the top end of the income spectrum, the reality is that many low to middle income workers would be hurt even more. Households earning less than $100,000 per year receive more than 60% of the tax benefits from company retirement plans. The companies that sponsor those plans must expend time and resources to properly maintain them and manage the associated liability. If business owners lose the tax deductions on their own contributions and are required to provide higher benefits to their employees than they receive themselves, there is not much incentive to deal with the burden of having a plan in the first place. That means all those benefits for households making less than $100,000 go down the tubes.
If Congress cuts the amount employees and companies can contribute to their retirement plans, everyone loses. Plans are killed, and retirement savings come to a sudden stop.
More than 70% of low and middle-income workers save when they are covered by a workplace retirement plan; whereas, fewer than 5% save when they don't have access. If you think the current economic situation is bad, just wait until an entire generation tries to retire without having had access to a solid employer-based retirement system.
Don’t panic! There is something all of us can do. One of the top priorities for those in Congress is to stay in Congress. That means if enough people voice an opinion, Senators and Representatives listen; and it is very easy to voice your opinion.
If you are reading this, I ask you to do three things.
- Visit www.SaveMy401k.com. There is a link on the main page that lets you e-mail your members of Congress to tell them to keep their hands off your retirement savings. It takes less than a 60 seconds.
- If you’re into the whole social media thing, SaveMy401k is on Facebook, Twitter, YouTube and LinkedIn. Please Like, Follow, Subscribe and/or Join.
- Spread the word to friends, family, clients, bosses, co-workers and anyone else who will listen. Use word-of-mouth, e-mail or social media. The more people who speak up, the more clearly Congress will get the message.
Retirement policy may not be the answer to life, the universe and everything, but it does impact everyone from business owners to managers to employees, regardless of industry, age or income level.
The last time Congress decided to raise revenue by cutting contribution limits (in the 1980s), companies killed off their retirement plans in droves. Let's remind them how big of a mistake it was then and make sure they don't repeat it in the future.