If you are a regular reader of this column, you know, unfortunately, there is a consistent theme that derives from the Left’s constant attempt to develop new rationale to extract money for the ever-expanding cost of government. President Obama dropped his latest stink bomb on hard working Americans with the release of his delinquent budget. He is coming after your 401 (k).
This was a shocking development to us, but apparently this idea has been floating around the “Leftist-sphere.” While researching the proposal we read a column from the Brookings Institute touting the proposal to cap the amount of money one can have in their retirement account. The statement is much in the vein that the government cannot afford to give tax benefits out on these plans like they have been doing. Otherwise, your earnings belong to the government and anything we let you keep you should be grateful for.
Most people are confused about their pension plans, but they are really quite easy to understand. There are two types of pension plans, both quite self-explanatory:
1. Defined Benefit – This means the plan tells you what you will get as an annual payment when you retire. These kinds of plans have been dispensed with for most people in private industry as they turned out to be too unpredictable and costly. Only about 10 million private industry Americans, including retirees, are covered by these plans. Defined benefit plans are the kind of plans government employees are covered by. That is why we have pension plan problems at all levels of government in the United States.
2. Defined Contribution – These are the kind of plans with which most American workers outside of government have become familiar. Just as the name suggests, the plan --whether it be a Traditional IRA, Roth IRA, 401 (k), SEP/IRA or Simple Plan -- tells you how much you can contribute. For example, in a Traditional or Roth IRA, you can contribute $5,000 in one year unless you are over 50 years old, in which case you get to contribute up to $6,000. In these plans there is no required annual contribution. All these plans have personalized accounts for all contributors, and when you leave a job you can transfer the money to another place without penalty.
What the Obama gang is saying is if you have a 401 (k) and it has too much money in your separate account, you must stop making contributions. In their proposed limitation Obama uses his typical language. They state some people’s pension accounts have “substantially more than is needed to fund reasonable levels of retirement savings.” Of course, what is needed or reasonable is not your decision, but the decision of these government wonks.
What is the “reasonable” level? It is easy just read how they determine that. They say they want to “limit an individual’s total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year of retirement.” Easy as pie to understand. What do you mean you read it three times and don’t have a clue? What do you mean the person who wrote that should be hung by their thumbs until they beg for mercy? Oh and by the way – that calculation has to be redone every year. Only government wonk attorneys who never had a real job could come up with such garbage.
This is all to stop “rich” people from accumulating too much money in their retirement plans.
But is that not what the limits of $5,000 or $17,500 for 401 (k) plans or $50,000 in your SEP/IRA are for? Is this really punishing the rich?
Let’s say you are a mid-level manager at a company. You make a nice living of $85,000 per year and you participate in your company’s 401 (k) plan. You put in $8,000 and your company puts in $2,000 of matching funds. You direct the people who invest the funds to buy your company’s stock. You have done that for the last 15 years. Your work at Google or Wal-Mart or Microsoft and your pension is now worth $8,000,000. You are now going to be penalized because you went to work for a company that has been successful and you bought their stock in your pension plan?
That story has happened thousands of times. And it could happen just as often to a mid-level employee as a highly paid employee because there are contribution limits. Yet, Obama wants to punish you. He would rather continue the lie about the financial viability of Social Security and discourage Americans from contributing to their self-funded, limited-contribution pension plans.
This is just more evidence our President has no clue about private industry. He wants to limit what you can have in your pension to pay for the excessive pensions of government employees that are funded with little or no money from their own pockets.
This limitation on pensions will probably not see the light of day in the final budget for 2014. But this is just the beginning of the war to enact this idea. Remember these people will come up with any scheme and rationalize it to increase taxes. This is just another fine example of their conniving minds.