According to an analysis by EBRI, if President Obama’s budget proposal to cap retirement savings were to go into effect in a higher interest rate environment, one-third of current workers and 75% of small business owners could be affected.
The proposal would cap savings for those who reach an estimated $205,000 in annual benefits, or $3.4 million at the prevailing interest rates when the proposal was made in April. IRAs, 401(k)s, 403(b)s and government funded 457(b)s would be affected, and DB benefits would be taken into account. Workers reaching the cap would no longer be eligible for existing tax advantages under these plans.
Under today’s historically low discount rates of 4%, only 10% of workers would be affected, according to EBRI’s model, but if the discount rate rates rose to 8%, for example, that percentage more than triples. The percentage of owners of small businesses (defined as those with fewer than 100 plan participants) affected would rise from 18% to 75% at 8% discount rates, which could cause some to discontinue their retirement plans.
