It didn't take long for the politically charged issue of income inequality, especially as it pertains to 401(k) plans, to take center stage at this year's NAPA 401(k) Summit. At the always-popular Washington update general session less than an hour into this year's Summit, NAPA's executive director/CEO Brian Graff raised the issue.
Graff, who shared the stage at the Summit's March 23 kickoff general session with a high-ranking staffer for the Senate Finance Committee, cited remarks made by President Obama in the wake of this year's State of the Union address urging Congress to join his efforts to "fix an upside down tax code that gives big tax breaks to help the wealthy save, but does little or nothing for middle class Americans."
"Income inequality will get fixed when more jobs are created and wages go up," said the staffer. He noted that Section 401(k) "is the only part of the tax code with a built-in provision that says that lower-paid workers have to kick in to the plan before highly compensated ones are allowed to. "That's the opposite of 'upside down,'" he declared.
On the issue of boosting coverage, and thereby retirement savings, the key is to focus on the employer, he said, not the employee. He cited two data points: (1) about 25% of employees don't have access to a workplace retirement plan; and (2) the take-up rate in a 401(k) plan with an auto-enrollment feature averages in the mid-80% range. Instead of encouraging employers to offer a retirement plan to connect those dots, he said, "Democrats in Congress, and many Republicans as well, say: 'Mandate it.' It's time to have that discussion," he said.
Turning to the political climate in Washington, the staffer noted that issues affecting retirement saving and the retirement industry have grow a lot more partisan since EGTRRA was enacted on a broad bipartisan basis in 2001. Progressives would like to move to a government-run, taxpayer funded retirement system, he believes, via a three-phases process:
1. Government-mandated plan. The first example of this approach is the auto-enroll IRA solution that can be found in several legislative proposals in Congress, and in proposals being considered in several states as well.
2. Make the Saver Tax Credit refundable. A bill to make this change may be introduced in the next 60 days, he believes.
3. Government chooses the investment vehicle. This approach is a foundational element of the president's MyRA accounts. Federal staffers are now developing a new government bond for this purpose, with the intent of launching a pilot program in 2015. Additionally, an RFP is already out for record keeping monies in the MyRA program, he noted.
