When it comes to issues that affect Americans’ ability to retire, the jury is still out on what the 2012 presidential election will bring. The retirement industry has its own ideas about what would help Americans save more for retirement, including keeping tax incentives for 401(k) plans and keeping Social Securityintact, but those wishes don’t necessarily mesh with what politicians want.
The Republican candidates for president, Mitt Romney and Newt Gingrich, have struggled to set themselves apart during the primaries. Contentious debates have focused on everything from taxes and the economy to job creation. When it comes to retirement issues, both candidates have been fairly vague.
In his “Believe in America” plan, released last year, Mitt Romney detailed what he hopes to accomplish if he garners the Republican nomination and beats out President Barack Obama in the 2012 election. He stated that he would try to make permanent the lower tax rates for investment income that were put in place by President George W. Bush. Another step would be a “middle class tax savings plan that would enable most Americans to save more for retirement. “
Romney also would try to “eliminate taxation on capital gains, dividends and interest for any taxpayer with an adjusted gross income of under $200,000, helping Americans to prepare for retirement and enjoy the freedom that accompanies financial security. This would encourage more Americans to save and to invest for the long-term, which would in turn free up capital for investment flowing back into the economy and helping to facilitate economic growth.”
Regarding Social Security, Romney said, “First, we must keep the promises made to our current retirees: their Social Security and Medicare benefits should not be affected. But second, we should ensure that the promises that we make to younger generations are promises we can keep. With respect to Social Security, there are a number of options that can be pursued to keep the system solvent—from raising the eligibility age to changing the way benefits are indexed to inflation for high-income retirees. One option that should not be on the table is raising the payroll tax or expanding the base of income to which the tax is applied.”
Gingrich has been very vocal about his plans for Social Security. Toward the end of last year, he announced he wanted to keep the Social Security program intact for older generations, but wanted to give younger people the option of putting that money aside in personal retirement accounts.
He said in an interview with the AARP that he feels strongly that Social Security should remain in its current form, but younger people should have a different option, while keeping the current system as a fall back.
Gingrich believes it wouldn’t take that long for the country to get back to a 4 percent unemployment rate, and if more people are working, they will be putting money back into the Social Security trust fund, which will stabilize it for another 35 or 40 years.
“For most of us, that’s a pretty powerful building block,” he said.
He proposed giving younger generations the opportunity to put their contributions to Social Security in a personal Social Security option, like Chile has, while keeping their employer match to sustain the current system, for managing the transition and sustaining the insurance pool.
“I wouldn’t go in and eliminate Social Security. If you want to take the personal savings account model, and you think it works better for you, we would keep the minimum payment Social Security level as your fall back.”
He added that, “as long as Social Security is stable I don’t look to Social Security to solve our deficit problem. It serves a unique purpose. It is a long-term program to enable people to know that in their older years they’re not going to starve; they’re not going to be kicked out; they’re not going to be homeless. It has done a very good job. I don’t agree with people who attack Social Security.”
David Wray, president of the Plan Sponsor Council of America, said he doesn’t expect any specifics regarding retirement issues from any of the candidates until the Republican nominee is chosen.
“[Retirement] is not a front and center Republican issue,” he said. “You read the paper every day. You see what the discussions are about, what they are focused on. The president is waiting to see who the candidate will be and then things will get more detailed.”
Wray added that, historically, once the two parties have identified their nominees, both sides will release white papers detailing different topics. “I’m sure retirement will be one of those, but look at summer at the earliest or late fall. No specifics until closer to the election.”
The Principal has shared a report with some members of Congress explaining what it believes should be done about the current retirement system. Its first recommendation was to preserve existing tax incentives and contribution limits and increase the limit for catch-up contributions.
“We urge Congress to carefully consider the unintended negative consequences of decreasing or removing current tax incentives for voluntary retirement programs,” the report stated. Reducing or eliminating the current tax incentives “would substantially impede savings and decrease the number of employer-sponsored plans, resulting in a detrimental impact on overall retirement security for Americans and the economy as a whole.”
In a survey of its own retirement plan sponsor clients, The Principal found that a reduction in tax incentives would “greatly impact non-highly compensated workers and pre-retirees: the very people that many in Congress are trying to protect.”
The Principal also would like Congress and the Department of Labor to simplify rules, plan designs and regulations to make it easier for employers to offer and plan sponsors to operate retirement plans.
The government needs to “make it easier for employers to install 401(k)s,” said Drew Denning, vice president of the Retiree Services Division at The Principal.
The government should also do a better job of publicizing and promoting retirement savings so people know what they need for an adequate retirement income.
“Creating greater awareness and education will make them better savers,” Denning said.