Blog
April 1, 2019
401(k) Investors Could Pay Tax Aimed At Wall Street Traders
It’s hard to imagine Congress wanting to tax Americans who are diligently saving for retirement by investing automatically into their company retirement plans, but that’s what a newly proposed “transaction tax” appears to do.
On Tuesday March, 6, Democrats proposed new legislation that will tax financial transactions – including those in your 401(k).
Called “The Wall Street Tax Act,” the new legislation would impose a financial transactions tax (FTT) on the sale of stocks, bonds and derivatives at 0.1 percent (10 basis points), and would raise an estimated $777 billion over a decade, according to the sponsors of the legislation, Sens. Chris Van Hollen (D-MD) and Brian Schatz (D-HI) and U.S. Rep. Peter DeFazio (D-OR).
While the legislation’s sponsors claim it is targeted at “unproductive and speculative” trading, the Wall Street Tax Act’s financial transactions tax (FTT) on the sale of stocks and bonds apparently includes those held within the trillions of dollars of retirement savings invested in mutual funds and collective investment trusts by pensions and 401(k)s.
Every week millions of Americans sacrifice to set aside part of their hard-earned pay for retirement, investing those savings to help provide a secure financial future. Now, after years of attacking 401(k) plan fees, the bill’s sponsors want to charge 10 basis points every time a contribution is invested. And then charge another 10 basis points when the account is rebalanced, something that happens regularly with default investments like target-date funds. And then, another 10 basis points when that worker retires and sells some of those investments.
The proposed plan is the equivalent of an across-the-board fee increase on 401(k) plans. In fact, based on a 2015 report by the Obama Administration’s Council of Economic Advisors on the impact of 401(k) fees, this tax could reduce an American’s retirement savings by as much as 3% over their working life.
At a time when there is so much concern about retirement income adequacy and the impact of 401(k) fees, it's hard to believe that some members of Congress would attack the retirement savings of hard-working Americans. Lawmakers simply didn’t think through the implications on retirement plan investors.
Your plan representative at BEI is always available to answer any questions you have about plan operations and please contact us at 800-899-9141 or email us at planservices@benefitequity.com.
Author: Robert Gorelick, APA, Founder Benefit Equity Inc.