Grab Your Pitchforks, America, Your 401(k) May Need Defending from Congress
In last week’s The Wall St. Journal article, “Grab Your Pitchforks, America, Your 401(k) May Need Defending from Congress,” author Jason Zweig called out members of Congress, describing them as “lucky participants in one of the best retirement plans around.” He then went on to suggest that lawmakers may be coming after your 401(k) and other similar retirement plans, while their own plans remain well-insulated and protected.
Zweig, who writes The Wall Street Journal’s “Intelligent Investor” column, and is a past senior writer for Money magazine, looked at the startling contrasts between the average 401(k) or similar retirement savings plan and the plans held by U.S. representatives, senators, and other select federal employees.
According to Zweig, whereas only 13 percent of US employees are covered by a 401(k) plus a traditional pension that assures stable, lifelong income, 100 percent of the members of Congress have the peace-of-mind that comes with enjoying both a 401(k) and a pension plan. And while retirement savers in the private workforce pay management fees that can exceed 1 percent annually, members of Congress pay a maximum of 0.039% for funds that, said Zweig, “… all but guarantee matching the market.”
Although tax reform still has a long way to go before anyone knows what the final product will look like, speculations are already in high gear. Some experts are suggesting that it is inevitable Congress will remove pre-tax benefits from 401(k) retirement plans. They project a shifting of 401(k) tax breaks to make them similar to the structure of the Roth IRA, where contributions are taxed at the time they are made, but then become tax free at the point of withdrawal.
Dreaming of Rothification
Nick Thornton, a financial writer on the Benefits Pro website, (www.benefitspro.com/) took a slightly more temperate position on the possibilities in his April 20, 2017 article, “Dreaming of Rothification.” Thornton quoted Ed Murphy, president of Empower Retirement, the nation’s second largest service provider to 401(k) plans.
“Anything and everything,” said Murphy, “is on the table with tax reform.” However, Murphy clearly didn’t give Thornton the impression that a full-blown change of 401(k) tax breaks would be the outcome. Thornton wrote, “While cautioning that it is still early in the process, Murphy thinks it is “highly unlikely” that Congress will embrace an option to move an entire retirement savings system to the Roth model.”