Obama’s FY 2015 Budget: Déjà vu All Over Again

President Obama released his proposed FY 2015 budget March 4. The $3.901 trillion budget would raise taxes, expand existing tax credits and fund a variety of entitlement programs. The budget also contains several retirement-related proposals that were first proposed in the president’s FY 2014 budget proposal last year, including a double tax on retirement plan contributions and a cap on total retirement savings contributions.

“Unfortunately, this year’s budget proposal includes the same wrong-headed attacks on employer-sponsored retirement plans as last year,” said Brian Graff, Executive Director/CEO of NAPA and ASPPA, in a statement. “The double tax on contributions to 401(k) plans and the misguided $3 million cap on the value of retirement benefits do not close any loopholes or curb any abuse. They punish small business owners who sponsor retirement plans for themselves and their employees. It is disappointing that an administration that claims to be concerned about giving more American workers access to retirement savings would discourage small business owners from maintaining the 401(k) plans they have now.”

Under the “double taxation” budget proposal, small business owners earning more than $250,000 would have to pay tax on contributions in the year the contributions are made, and then pay tax again at the full rate when contributions are distributed at retirement. This amounts to a penalty for saving through a 401(k) plan, said Graff. “Who could blame small business owners for thinking that if the government is going to penalize them for saving in a retirement plan, maybe they should not continue to offer that plan?”

Savings Cap Redux

The president’s budget also includes the proposed $3 million cap on retirement savings that was widely panned a year ago. The cap “is not closing a loophole and is not correcting some perceived abuse of the rules,” Graff declared. “There are already caps on contributions and a cap on the pay that can be used to calculate benefits. This proposed cap would basically punish savers for starting to save for retirement when they are young or investing ‘too successfully.’”

EBRI estimates that even at current low interest rates, one in 10 current 401(k) participants will likely hit the cap if they continue to save in a 401(k) plan until retirement. Since the cap shrinks as interest rates increase, while account balances will grow faster, the higher interest rates climb, the more savers will end up being affected by the cap.

“We think it is grossly unfair that this proposal would limit a small business owner to retirement benefits that are nowhere near as valuable as executives’ at large corporations. Small business can’t use the nonqualified deferred compensation arrangements that provide millions — even billions — of dollars in retirement benefits to big corporate executives. Every time retirement plan limits are cut, the corporate CEOs get more nonqualified retirement benefits. It’s the small business owners and their employees who lose out, and that just isn’t fair,” said Graff.

Look for more coverage of the retirement-related provisions in the president’s 2015 budget proposal in the coming days.

Add Your Comments


  1. David Abert
    Posted March 5, 2014 at 1:07 pm | Permalink

    Same Old Blah,Blah,Blah out of Obama.
    He has no interest in allowing the small
    businesses and middle class employee.
    His total interest is taking care of
    the ” people that never get the opportunity
    to better themselves. If he wants to be a social
    worker he is in the wrong job. I am not so sure
    that his concentration on certain citizens is
    so much that he cares or he know they are the
    ones that got him re-elected and tend to support
    his ideological beliefs. He wants a goverment
    opporated retirement vehicle as was brought
    up in one of his last speeches (control)
    The people need to open there eyes to the
    road we are being taken down. Realistically how
    may average americans have 3 million dollars stashed
    away in there 401k accounts?

  2. Joseph Gordon
    Posted March 5, 2014 at 4:30 pm | Permalink

    It is an election year and he is not that relevant except in continuing to make up the law and rules as he goes on his legacy, Obamacare.
    Most democrats are running away from Obamacare as fast as they can.

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