Survival 101 means we freeze in the face of uncertainty, which applies to spending and saving.
Witness the “mountains of cash” on which companies sat during the Obama Administration, despite record earnings. Dodd-Frank, ACA, the 1099 Rule and other overzealous regulations had yet to shake out, and the environment was too uncertain to deploy capital. Companies (not unreasonably) wanted to know how regulations would affect earnings before investments were made.
Or, more generally, people need confidence that policy incentives will remain consistent and in place long enough to reap the benefits of whatever behavior is being encouraged, as The Wall Street Journal helpfully notes in a piece today.
At a time when retirement plan access and coverage is all-important, when handwringing and teeth-gnashing about enrollment, escalation and deferral rates occupy conference panels and column inches, Congress includes a provision that disincentivizes saving—in this case for the stretch IRA—while mega balances in some accounts have Senate spenders salivating.
Far from naïve about SECURE Act sausage-making, we get it’s robbing Peter and paying Paul, since all legislation of this type must be somehow funded, but whacking a popular planning tool is not the way to do it.
“The rules on retirement savings constitute a kind of social contract that shouldn’t be hastily broken,” the Journal writes. “Particularly as Social Security and Medicare slink toward insolvency, Congress may be tempted to fiddle with the laws on 401k plans and IRAs. It’s a way for lawmakers to gin up revenue while pretending they aren’t raising taxes.”
Politics and “pretend” go hand in hand, but employee anxiety over salary deferrals, and whether the money will be there when the time comes, is an ongoing and evergreen concern with which advisors and plan sponsors must grapple.
Congressional action of this type isn’t helping.