The indispensable Jason Zweig made the call Friday to man the battlements and defend the tax-advantaged status of the 401k.
Noting that the “lucky participants in one of the best retirement plans around” (Congress and their gilded FERS) are coming after the 401k with a meat cleaver, The Wall Street Journal columnist employed equally stark language in advising readers to “keep pitchforks handy.”
Echoing ARA CEO Brian Graff’s comments at last month’s 401k Summit—without the angst—he quoted Bradford Campbell, a partner in the law firm of Drinker Biddle & Reath, about the next round of tax reform Trump is proposing.
“It’s not really a question of whether retirement plans will get a haircut, but of how much,” Campbell, assistant Secretary of Labor under Pres. George W. Bush, told Zweig.
A reason why, for the benefit of the paper’s consumer-based readers, was then offered.
“That’s because the money you contribute to 401(k)s and several other types of retirement plans isn’t subject to current income tax. Nor are your future earnings on those accounts—until you take them out to live on in retirement, when your withdrawals will be taxed as ordinary income.”
And he provided this maddening gem.
“Retirement savers in the private workforce pay outlandish management fees that can exceed 1 percent annually on lousy investment choices; members of Congress pay a maximum of 0.039 percent for funds that all but guarantee matching the market.”
He rightly added that it’s tough enough, from a behavioral standpoint, to get participants to actually engage in deferred gratification by investing in something for which the payoff (or rather payout) is decades away. Just ask Daniel Kahneman and Co.
He concluded by calling on Congress, at a bare minimum, “to make cuts to the cushy federal system” if they dare take a tax hack to 401ks.
“There should be equal sacrifice,” Campbell agreed. “It’d be very hard for them to justify not doing that.”