With just over a month left in the comment period for the Department of Labor’s proposed conflict-of-interest rule, a new paper from the Brookings Institute is proposing policies that would make the potential disruptiveness of the DOL’s rule seem insignificant.
In a recent paper published by the Hamilton Project (the policy group at Brookings that addresses retirement security), John Friedman, an economist at Brown University, proposes Congress scrap all existing tax-preferred retirement savings plans and replace them with a single plan — the Universal Retirement Savings Account.
The savings plan would follow workers throughout their careers, and incentivize employers with a tax credit for every worker that deferred at least 3 percent of earnings. Deferral rates would increase 1 percent annually, be capped at 8 percent, and sponsors’ tax credits would increase accordingly.
The tax credits would count against the employers’ share of payroll taxes, which, of course, fund Social Security.
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Lost revenue from those tax credits would be offset by limiting the tax savings currently enjoyed by retirement savers, “especially higher-income taxpayers,” according to the paper.
Friedman remains “agnostic” as to the pre-tax treatment of contributions in URSAs.
If Congress were to designate URSAs as pre-tax accounts, joint annual contributions would be limited to $35,000, with all contributions deductible at a rate capped at 25 percent.