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Populism Sans Facts

I was excited to hear that President Obama would be addressing the issue of retirement security in a series of speeches last week focusing on his policy agenda. That is, until I actually heard him do it.

Speaking at Knox College in Galesburg, IL, on July 24, the president took the stage and made an irresponsibly misleading assertion about our so-called “upside down” retirement system.

Nobody will question that retirement is a complicated topic for people who don’t focus on it every day. As a member of the ASPPA family since 2009, and a new member of the ASPPA government affairs team, I’ve grown pretty accustomed to responding to confusion about retirement plan policy from friends and family with a simple explanation of how it works.

It concerns me that I now have to offer one to the president.

“Today a rising stock market has millions of retirement balances going up, and some of the losses that had taken place during the financial crisis have been recovered," said Mr. Obama. “But we still live with an upside-down system where those at the top, folks like me, get generous tax incentives to save while tens of millions of hardworking Americans who are struggling — they get none of those breaks at all.”

“They get none of those breaks at all”? The 401(k) and similar plans are, in fact, workplace retirement plans subject to tax-deferred incentives designed to encourage savings. More than 78% of full-time American workers have access to workplace retirement plans like the 401(k). Participation in employer-sponsored DC plans is heavily weighted toward the middle class, with 80% of participants earning less than $100,000 a year.

This is no “upside down” system. The law requires that the benefits of retirement plans offered by employers must be made available to all eligible employees, regardless of their position in the company. With a tax-preferred employer-based retirement plan, non-discrimination rules ensure that meaningful retirement plan contributions can only be made for highly compensated employees by making contributions for non-highly compensated employees.

The result? In 2012, more than 70% of the tax benefit for defined contribution plans went to middle class families earning under $150,000 (see “Distributional Analysis and Pension Tax Provisions,” here). Within that group of middle class workers, the greatest share of the tax benefit went to workers earning less than $50,000. That is hardly “upside down.”

Mr. President, if more than 70% of all of the tax benefits for workplace retirement plans is going to the middle class, then nondiscrimination testing clearly works. And you are clearly wrong.

It’s wonderful that you’re taking a message about improving retirement security to the people, especially college students. What concerns me, and should concern everyone, is that you don’t have your facts straight when you take the stage.

Ray Harmon, Esq., is ASPPA’s Government Affairs Counsel.

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