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Financial Transaction Tax Attacks Retirement Savings


Democrats in both houses of Congress have introduced legislation that will tax financial transactions – including those in your 401(k).

"It's called the Wall Street Tax Act, but it's really a Main Street savings attack," said Brian Graff, CEO of the American Retirement Association.

The Wall Street Tax Act would impose a financial transactions tax (FTT) on the sale of stocks, bonds and derivatives at 0.1 percent (10 basis points), and would raise an estimated $777 billion over a decade, according to the sponsors of the legislation, Sens. Chris Van Hollen (D-MD) and Brian Schatz (D-HI) and U.S. Rep. Peter DeFazio (D-OR).

While the legislation’s sponsors claim it is targeted at “unproductive and speculative” trading, the Wall Street Tax Act’s financial transactions tax (FTT) on the sale of stocks and bonds apparently includes those held within the trillions of dollars of retirement savings invested in mutual funds and collective investment trusts by pensions and 401(k)s.

The bill’s sponsors claim the Wall Street Tax Act “addresses the disconnect between the financial system and the real economy by reducing unproductive and speculative trading,” and that “by increasing transaction costs slightly, the bill will help redirect investment that has flooded into transactions without economic value into more productive areas of the economy. It will also reduce the risk of financial crashes and limit the risks that high-speed arbitrage pose to our financial system.”

Redirect is an interesting way to phrase it. But think about it – every week millions of Americans sacrifice to set aside part of their hard-earned pay for retirement, investing those savings to help provide a secure financial future. And yet, after years of attacking 401(k) plan fees, the bill’s sponsors now want to charge 10 basis points every time a contribution is invested. And then charge another 10 basis points when the account is rebalanced, something that happens regularly with default investments like target-date funds. And then, another 10 basis points when that worker retires and sells some of those investments.

“We’re talking about the equivalent of an across-the-board fee increase on 401(k) plans,” Graff notes.  In fact, based on a 2015 report by the Obama Administration’s Council of Economic Advisors on the impact of 401(k) fees, this tax could reduce an American’s retirement savings by as much as 3% over their working life. 

"It appears that some in Congress may think that the only people who invest are super rich," Graff concludes. "But there are 80 million American workers who are investing for their future in their 401(k). At a time when there is so much concern about retirement income adequacy and the impact of 401(k) fees, it's stunning that some members of Congress would attack the retirement savings of hard-working Americans."