President Barack Obama’s fiscal 2014 budget proposal unveiled Wednesday repeated calls for reducing tax incentives for retirement savings on higher income taxpayers with a new call to cap individual retirement accounts at $3 million.
The president’s budget also calls for eliminating the carried interest rate paid by general partners in private equity and other alternative investments, higher premiums charged by the Pension Benefit Guaranty Corp. and higher employee contributions to federal retirement accounts.
“The recent explosion of activity among large private equity firms and hedge funds has increased the breadth and cost of this tax preference” and benefited highest-income earners, the proposal stated.
A private equity industry source who declined to be named said the idea has been raised every year by Mr. Obama, without any action by Congress. “I don’t think it signals anything,” the source said.
Capping retirement accounts at $3 million “is an outrageous proposal,” said Brian Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries. “People have been making contributions for years, they’ve been playing by the rules and now they want to change the game?” Mr. Graff said in an interview.
Lynn Dudley, senior vice president of policy for the American Benefits Council, said she shares Mr. Graff’s concerns that the cap will discourage smaller business owners from offering retirement plans at all.
“I’m worried about the how the mechanics will work, too,” Ms. Dudley said in an interview. She was also discouraged that the president’s budget calls for eliminating the tax deduction for employee stock contributions to retirement plans. “It’s going to affect a lot of companies’ willingness to deliver stock to their employees,” Ms. Dudley said.