Albert Feuer, who writes frequently on the technical aspects of ERISA compliance, has published an interesting new article in Bloomberg Tax’s Tax Management Compensation Planning Journal on the latest proposed legislation to alter retirement savings. Albert points out that the changes would help in allowing employees to increase their retirement savings, but would fail to either address the complexity of the system or the extent to which it allows a small percentage of taxpayers to use retirement accounts to shelter massive amounts of wealth far beyond that needed to fund retirement. I am much more sanguine than is Albert about the inequity built into the system reflected in such sheltering, as it seems to me to be of a piece with innumerable aspects of the tax code that favor the already wealthy over those aspiring to someday reach that status. I do, however, share his concern about the complexity of the retirement system, which he believes proposed legislation will not only fail to reduce but will instead actually increase. If I had a dollar for every case I have handled where the underlying cause of the problem was simply the complexity of the system, which in turn gave rise to operational errors that had to be remedied, I could, well, retire.

More important in regards to the points Albert makes in his article, I think, is that the complexity reinforces and in many ways increases the inequities built into the system, by making it harder for smaller employers to provide retirement benefits and for employees, across the board and regardless of the size of their employer, to access and make use of them. For instance, time and again, I see cases where, through inadvertent oversight or simple ignorance, employees foul up the rollover timing or process, losing the ability to maintain their tax deferred retirement status, in circumstances where they simply want to be able to maintain the tax sheltered status of their retirement accounts. Why, in the name of encouraging good retirement outcomes, do we turn this process into a game of gotcha whereby employees can, through negligence or sheer ignorance, lose the tax deferral on their account balances because they fouled up the rollover process or timing, instead of just allowing employees a far greater degree of leeway in this regard than the rules currently do?

Similarly, it is probably only a slight exaggeration to say that there has never been a time where I haven’t had at least one dispute open on my desk involving a small employer trying to remedy operational errors in its retirement plan. It is simply too complex an area for small employers, who are not trying to do anything fancy but instead simply trying to provide industry standard defined contribution plans for their employees. Adding to the level of complexity, as Albert fears new legislation would do, would simply increase this barrier to adoption or operation of retirement plans by smaller employers.

Anyway, if I were to build on Albert’s article, or respond more directly to his thesis, I would suggest he worry less about the inequities and more on the complexity – which I think in and of itself plays a significant role in increasing the inequity in retirement preparedness that he is concerned about (after all, I have never seen someone with a so-called Mega IRA – meaning one vastly exceeding anyone’s retirement needs – who didn’t also have access to enough professional expertise to avoid the traps and risks in the operation of retirement accounts).