It’s led to the demise of pension plans that promise a guaranteed income after retirement. Pension plans put the financial risk on employers, but now they’ve been replaced with 401k accounts, which leaves workers less certain about their futures.
Another reason it’s been harder for workers to save for retirement has to do with how CEOs get paid. Because of a tax loophole, company leaders often get paid in large bonuses that can be bigger than their actual salaries. That means they are financially incentivized to create short-term gains for their companies (and presumably get a larger bonus). The lead author of the report, Sarah Anderson, points out this is sometimes accomplished by cutting worker benefits.
“It encourages a whole host of short-termist kinds of actions,” she said.
CEOs get special retirement accounts that the rest of us don’t
Anderson also makes the point that CEOs have tools that help them save better than the rest of us.
For example, there are limits on how much money we can put into a 401k plan. But most large companies set up special retirement accounts for their executive, which let them defer their compensation until retirement — with no contribution limits. And they don’t have to pay taxes on this income until they withdraw the funds.
The Trump tax plan helps CEOs keep more of their money. House Republicans want to cut the safety net.
When CEOs withdraw their money from these unlimited retirement accounts, they have to pay taxes on that income. Currently, the top marginal rate is 39 percent. Trump wants to lower that to 33 percent.
Right now, the top 100 CEOs have about $3 billion in those special accounts. So under current law, they would owe $1.2 billion in federal income taxes if they withdrew it. Under Trump’s plan, that number drops to $979 million, which is a savings of almost $200 million. That’s money taxpayers lose out on.
This is all part of a larger problem. The wealth gap in the US is already problematic, andgetting worse. Federal minimum wage has been dropping, labor unions are on the decline, and the value of high school and college diplomas are not what they used to be. That means fewer Americans will have savings when they retire — and they’ll have to rely solely on Social Security.
Trump hasn’t expressed any plans to mess with Social Security, but House Republicans recently unveiled a plan that cuts benefits for everyone but the lowest-earning Americans — and raises the retirement age. Republicans call this a plan to save Social Security, but as the LA Times columnist Michael Hiltzik writes:
In short, widening wealth inequality means Americans will need a stronger safety net than their parents. But instead, they’ll get to retirement and find a less potent one.
Anderson said, “The one thing that’s really between them and abject poverty in their senior years is being attacked.”