Not to paint an overly pessimistic image or anything – well, with less than two weeks left in the election cycle, that's a tall order indeed, especially when it comes to the worries the retirement industry has about the fate of this year's big decision.
I got an apt overview of the best-case/worst-case scenarios facing the 401(k) business from Jim Cavanaugh, assistant director of federal government regulations for the Principal Financial Group – one of the speakers at this week's Center for Due Diligence conference in Chicago.
Cavanaugh – and many like-minded people representing the retirement business – are doing their best to figure out what changes may be around the corner, post-election. He admits that the news is not great, either way, though something absolutely has to happen to help offset some of the financial issues dogging the whole financial industry.
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The most pressing issue, he said, is the $4 trillion in potential tax increases affecting 60 million people through the simultaneous expiration of Bush-era tax cuts, payroll taxes and others – and with a lame duck session incapacitating the ability to make any changes, we're in for a rough ride.
If that fiscal cliff comes and goes, Cavanaugh said estimates call for a 3 percent shrinkage of the GDP, negative overall economic growth and two million extra unemployed workers. But a quick solution might not be the best thing, either.
"I don't know if I want these things to be decided at the 11th hour, either," he said. "We're looking for a transparent process in the light of day."
Worst of all, in times of extreme cost-cutting, with retirement programs coming in as the third largest item on the presidential budget, many leaders on the Hill would like to make fast and deep cuts.
"Unfortunately, we're on the table – even though we're a tax deferral, not an expense. We pay back. These guys need to view retirement plans as a different animal. We've just been playing too much defence as a result."
And are there any new retirement ideas floating out there? Both candidates have been extremely vague on any notions tied to boosting and encouraging retirement savings, though three other proposals have been getting some recent attention on the Hill.
"One idea is to redefine retirement savings as a tax credit. Another, from the Simpson-Bowles Commission, has suggested capping retirement taxes at 20 percent of income or $20,000, which would totally squelch savings. And then there's a proposal to have a total conversion of the system to a Roth-styled system. We already have a $6.6 trillion savings gap. How would any of those make that number smaller?"
Is there anything positive on the horizon? Cavanaugh says the biggest hope for the industry will be a quick resolution to one very divisive election season and some immediate action on tax issues, as soon as possible after inauguration. And keep your fingers crossed that someone finally pays attention at that point.
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