August, 2018
President Trump Issues An
Executive Order Addressing
Ways To Strengthen U.S.
Retirement Security
It is now estimated there is 30.4 trillion
comprising U.S. Retirement Plan Assets
as follows:
27% (8.2 trillion) in IRAs;
18% in 401(k) plans and other defined
contribution plans;
20% in state and local government plans;
13% in federal government plans;
12% in private insured plans and
10% in private defined benefit plans.
Much of the amount in IRAs arises from
rollovers and direct rollovers into IRAs
from 401(k) plans and the other retirement
plans. Most taxpayers are not making
annual IRA contributions. They
could, but they choose not to.
Employees who work for large private
employers or a governmental entity are
generally covered by retirement plans
and have the opportunity to save and
invest for retirement. However, individuals
who work for small employers (less
than 100 employees) often do not participate
in a retirement plan and do not
have the same opportunity to save and
invest for retirement. The Government
Accountability Office has determined
that only 14 percent of small businesses
currently sponsor a retirement plan.
However, many of these individuals who
are unable to make contributions to a
retirement plan are eligible to make an
annual IRA contribution, but choose not
to do so.
President Trump has recently issued an
executive order so that new ideas may be
tried to encourage small businesses to
establish workplace retirement plans.
The Trump administration has no discussion
of what action can be taken so that
more individuals will make annual IRA
contributions. Higher interest rates
would certainly help. Repealing the rules
limiting the ability of many individuals to
claim a tax deduction for their IRA contribution
would also help. The Obama
administration tried to encourage small
employers with its myRA payroll deduction
program to allow employees to
make Roth IRA contributions. The program
as not very successful.
Supposedly, many small employers
believe the cost of establishing and maintaining
a retirement plan is too expensive
and too complex so they choose not to
do it. The Trump administration is going
to gather information whether it is good
idea to allow small businesses and midsized
businesses to form an association
of employers so that various legal and
administrative costs could be shared by a
group of employers.
The Trump administration is stating it is
going to review if the RMD rules should
be modified. One must closely watch to
see what action, if any, will be taken. The
government needs tax revenues. The
RMD rules result in individuals having to
pay income tax on their IRA and pension
distributions. The IRS is not inclined to
change the RMD rules if the change will
lead to individuals paying fewer taxes.
Many individuals are attaining ages in
excess of age 85 and because of the RMD rules many times these individuals have severely
depleted their IRA account balances. One proposal
would require the IRS to issue new life expectancy
tables. The IRS last revised these tables in 2002. If the
IRS would revise these tables to incorporate more current
life expectancy information it is believed that individuals
are living longer and therefore RMDs would
decrease if new life expectancy tables were used
In summary, there needs to be a two step plan of
action to increase U.S. retirement plan assets. First,
more small employers need to establish a retirement
plan for their employees. Secondly, the number of individuals
in the U.S. making annual IRA contributions
must increase substantially.
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