A digest of timely information and insight about finance, investing and retirement
Congress to delay ACA’s ‘Cadillac’ tax on pricey health plans until 2020 | Washington Post
A decision by Congress to defer a new tax on expensive employer health plans, the first major change that lawmakers have made to the Affordable Care Act since its passage, would cost the government an estimated $9 billion.
The two-year postponement in what has been dubbed the “Cadillac tax,” because it applies to high-priced insurance, is the most significant of three changes to ACA taxes woven into a Congressional budget package.
Readers’ picks in 2015 | Squared Away Blog
Though the Squared Away blog covers everything from student loans to helping low-income people improve their lot, the articles with the most reader traffic over the past year were dominated by one topic: retirement.
The Fed raised interest rates so what happens next? | NPR
The Federal Reserve raised interest rates earlier in December, something it had not done since 2006. The long-awaited action was so well advertised that much of the market reaction actually occurred in advance.
Pushing aside 401(k)s for mandatory savings plans | The New York Times
As most private employers have abandoned traditional pensions and replaced them with self-financed retirement accounts, many Americans are not saving enough to ensure a comfortable retirement.
One solution could be Guaranteed Retirement Accounts. The president of Blackstone, the giant private equity firm, is teaming up with a labor economist and professor at the New School for Social Research to push such a government-sponsored plan that would require participation and contributions from any employer without its own 401(k).
Plan return comparison highlights DB outperformance | PlanSponsor
Defined benefit (DB) plan investment returns outperformed 401(k)s, according to a new study from the Center for Retirement Research at Boston College. Looking at investment returns by plan type from 1990 to 2012, the study found an average difference of 0.70 percent a year, even after controlling for plan size and asset allocation.
One major reason is higher fees. And much of the money accumulated in 401(k)s eventually is rolled over to IRAs, which earn even lower returns.
Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Asset allocationAn investor’s mix of stocks, bonds, and other investments. PERA’s strategic asset allocation is set by the PERA Board of Trustees.Private equityA type of investment in which investors purchase shares of a company that is not traded on a public stock exchange.
Why mention a Cadillac tax and then not explain it?
Mr. Lee,
Thank you for your question about the Cadillac tax. While the linked Washington Post article explains what the tax is, it doesn’t explain why PERA retirees should care about this issue.
Thank you for the opportunity to do so.
As part of the Affordable Care Act, a so-called Cadillac tax was scheduled to be imposed in 2018 on employer-sponsored plans that exceed certain benefit thresholds, including PERACare pre-Medicare plans. This non-deductible excise tax of 40 percent was initially designed to target only a small number of “overly rich” plans, but early retiree plans like PERACare would be affected because retirees tend to have more chronic conditions and prescriptions and cost more than plans designed for younger employed populations. If the Cadillac tax were to be implemented, PERACare would have to either cut benefits or increase premiums to cover the excise tax.