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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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