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Thursday, Jun 8, 2023




If you’ve held several jobs during your working life, and they all provided a retirement plan, I hate to think about your paperwork. All the plans are probably trailing you, like a comet’s tail.

Reader Suzanne O’Keefe of Brooklyn, N.Y., writes that she has two 403(b) plans, from when she taught at graduate school; a third 403(b) from her current employer; a self-directed pension from her current employer, which lets her pick the mutual funds; a 457 plan from the city of New York; and an Individual Retirement Account.

The money in her six plans is spread over 11 mutual funds, and managing them is “a horror,” she says. She wonders which plans she can consolidate. Or is it better to stay diversified?

To me, it’s a political disgrace that retirement funds should be so scattered. It’s tough enough choosing mutual funds and balancing your investments. It’s stupid to have to do it across different types of plans, each with different rules.

Congress cobbled our retirement-savings system over many years: 403(b) plans for teachers and employees of non-profits; 401(k) plans for businesses; 457s for state and local government employees; Keoghs and SEP-IRAs for the self-employed; IRAs for employees with no company plans, or for lower-income employees, and there are more.

Their excessive variety stems from the attitudes of different congressional committees, and the exigencies of different budget years. But there’s no public policy that this Balkanization serves. Why shouldn’t all your retirement money be portable, so you can transfer it from one job to another? Why shouldn’t there be a Universal Plan, to receive all the funds from all the different places you’ve worked?

Rollover IRAs come close to being a Universal Plan, but not close enough. Some retirement funds can’t be rolled into an IRA, and there’s no good reason why.

The White House and Congress (both Republicans and Democrats) agree that the current arrangement is dumb, and even concur on portability. It would cost the Treasury virtually nothing.

Several pension reform bills espouse portability, along with other sweeping changes. If the more ambitious bills don’t get passed, there’s a simple Retirement Account Portability Act, sponsored by Reps. Earl Pomeroy, D-N.D., and Jim Kolbe, R-Ariz.

Here are five of the things that the Portability Act would do:

? Money in tax-deferred 401(k)s, 403(b)s and most 457s could be moved from one plan to another, as you changed jobs. Bye-bye comet’s tail. You could consolidate all your money in a single plan.

Three problems would remain. First, employers don’t have to accept money from other plans, so you may not be able to use this provision. Second, 403(b)s are often invested in insurance-company annuities and the insurer may lock you in. The insurer might charge a penalty, if you switch to another plan before a certain number of years have passed.

Third, you couldn’t consolidate Keoghs or SEP-IRAs. They’re not covered in the bill.

? Money from 457 plans could be rolled into an IRA. Today, IRAs can receive money only from 401(k)s and 403(b)s.

? IRA money could be moved into 401(k)s, 403(b)s and government-sponsored 457 plans (but not 457s at tax-exempt organizations, because of their legal structure).

? There would be an important change in the IRA rules. Today, many people feel compelled to keep two IRAs one for rollover money that came out of an employer plan and one for any money they saved independently. Only the rollover money can be consolidated in a new employer’s plan.

Under the portability bill, you’d need only one IRA. All of the money could be consolidated in a new employer’s plan.

? If you make after-tax contributions to your employer plan, they wouldn’t have to be cashed out when you leave, as happens today. You could roll them into an IRA, too.

Pomeroy says that he, himself, has a 457 plan from prior employment in North Dakota. “It just sits there, poorly invested,” he says. “I’d like to have all my stuff in one place.”

Getting better, really

After signing an income tax form, the average, peace-loving American seems to feel a sudden desire to blow up the IRS. Pandering legislators may claim that you’re laboring under the heaviest tax burden ever.

In fact, the vast majority of us are paying less than our counterparts did 20, even 30 years ago. Some surprising facts about the success of the tax revolt:

? The U.S. Treasury reports that four-person families earning the median income ($55,000) will pay 7.5 percent of it in federal income taxes in 1999. That’s the lowest level in more than 30 years.

Families with double the median income will pay an average of 14 percent, their lowest since 1972.

? For a majority of families, the Social Security tax now weighs more heavily than the income tax. If it’s added to the mix, the federal tax take grows to 13 percent at the lower income level; 21 percent at the median and almost 24 percent at twice the median.

This calculation overstates the amount of actual cash you part with, because it assumes that you pay the employer’s half of the tax on top of your own. Even so, at the median income and below, the combined tax burden hasn’t been this low in 20 or 30 years.

? State and local taxes have stayed at about the same portion of the economy since 1970. They don’t change the conclusion that, on average, rates are down.

But what about those who claim that taxes are higher than ever? As a percentage of the economy, federal tax collections did indeed rise to a record 21.4 percent in 1997, compared with a typical range of 19 to 20 percent. Including state and local taxes, it’s 31.6 percent.

The Tax Foundation in Washington, D.C., uses tax collections to calculate Tax Freedom Day the number of days you supposedly work for the government before your earnings become your own.

With a few zigs and zags, tax collections go higher every year, and Tax Freedom Day gets later (this year it’s May 10). To know-nothing politicians, this means that your life is getting worse.

Baloney. It means that your life is getting better. Tax collections rise when incomes and the economy do. You’re waiting longer for Tax Freedom Day this year because wages and stock market profits are up. How bad is that?

What’s more, the high tax collections in today’s economy come mostly from the highest-income group, says economist William Gale of the Brookings Institution and not just because their tax rates rose in 1990 and 1993. Their incomes are soaring (including their profits from stocks), so they have much more to tax.

Call me a heretic, but I’d say that taxes are a small price for the rich to pay, to support a system in which they do so well. You want money on tap for Medicare and Social Security? Education and cops? National defense and roads? Pay up.

Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.

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