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Obama proposes more retirement plan access, tax savings cap

Obama proposes more retirement plan access, tax savings cap

President Barack Obama's fiscal year 2016 budget proposal released Monday calls for expanding access to retirement savings in the workplace while capping the tax-favored accumulation of all private retirement assets.

It would also raise $19 billion over the next 10 years by changing the way the Pension Benefit Guaranty Corp. sets premiums. After consulting with stakeholders, premium increases would be split among single-employer and multiemployer programs and phased in gradually.

Mr. Obama also called for Congress to rebalance a tax code that he said favors the wealthy, by increasing the capital gains tax rate to 28% and other tax changes that would have 99% of tax revenue come from the top 1% of income earners. Financial firms with more than $50 billion in assets would pay a seven-basis-point fee tied to the amount of leverage they hold. The new fee would raise $112 billion over 10 years and improve economic stability “by attaching a direct cost to leverage for large firms,” the proposal said.

The retirement-related proposals would give employers new or larger tax credits for either offering retirement savings plans at work or automatically enrolling workers in them for the first time, including part-time workers. The budget also proposes giving the U.S. Department of Labor $6.5 million to support states and waiver authority to enable states to implement their own defined contribution programs, to address concerns over conflicting laws as states consider new approaches to help private-sector workers have access to retirement accounts.

Under the controversial retirement savings cap idea, once an annual retirement income of $210,000 in combined defined benefit and defined contribution assets is reached, retirement savings above that level would not be tax-deferred. That would mean a $3.4 million cap by current interest rates.

“We need to spend a lot more time talking about (the cap idea),” said Lynn Dudley, senior vice president of global retirement and compensation policy for the American Benefits Council. “There's a lot of push and pull and not a lot around a cohesive national retirement policy,” Ms. Dudley said.

While the cap idea is “wrongheaded” and would be difficult to administer, “if you can isolate on the coverage expansion pieces, there are some helpful ideas,” said Judy Miller, director of retirement policy for the American Society of Pension Professionals & Actuaries.

The U.S. Securities and Exchange Commission would see its budget increase 15% under the budget proposal. That includes 225 more examiners to oversee investment advisers, 93 new enforcement officials, including litigators to deal with a growing number of contested cases, and more positions in the investment management, risk analysis and trading and markets divisions.

Hazel Bradford writes for Pensions & Investments, a sister publication of Business Insurance.

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