“Protecting Our Seniors From Harmful Retirement Account Penalties”
The precipitous decline in our nation’s financial markets is presenting America with its greatest economic challenge in decades. According to the Dow Jones Wilshire 5000 Composite Index, which tracks the value of all stocks actively traded, the markets have lost more than 40 percent of their value – nearly $7 trillion – since the beginning of this year.
The effects of this crisis are felt by all-- in every community, business, and home. The effects are especially damaging to our seniors. Retirees over 70½ years old face a unique predicament: they are obligated by law and regulation to withdraw funds from their retirement accounts or face a tax penalty of 50 percent of the amount that should have been distributed.
Forcing our nation’s retirees to liquidate assets – the result of a lifetime of working and saving --at distressed prices makes little sense. Such an outcome would not only unfairly penalize retirees, but would also work against our efforts to stabilize the financial markets. At a time when patience and confidence are required, our retirees essentially are forced to sell stocks, turning what for some could be temporary paper losses into permanent real losses. Many retirees from throughout Maine have contacted me about this. As one said, his 401(k) is “eroding at an alarming rate,” yet he is being compelled to take this Required Minimum Distribution (RMD) at a time when his investments are at their lowest value.
There is an immediate remedy available. The Secretary of the Treasury has the authority to establish regulations governing the Required Minimum Distribution. I have written to Secretary Henry Paulson, requesting that he use this authority to suspend the RMD at least for this year and to waive any tax penalties that otherwise would apply.
In addition to helping our retirees weather the current financial storm, we must learn from this crisis and better prepare ourselves for the economic downturns that are inevitable in the future. For that reason, I also have asked Secretary Paulson to revise the regulations regarding the calculation of the RMD so that the amount of the Required Minimum Distribution is set with reference to the lesser of the account balance as it existed on the first day of the calendar year, and the account balance that existed on the last day of the calendar year. This revision would have the effect of reducing the size of any RMD in years where the value of an account declines precipitously, as it has this year.
I am also working with my Senate colleagues to identify ways that Congress could amend this law that is harmful to so many retirees.
Of course, the best way to address this problem is to stimulate the economy so that the value of investments will grow. I will support a second stimulus package to boost the economy as recommended by the Federal Reserve Chairman and other economists. Among provisions I have proposed are: a $50 billion infrastructure investment as contained in the Economic Recovery Act legislation I introduced in June, which would put people to work immediately in good construction jobs; measures that would help small businesses create and preserve jobs; a temporary increase in Medicaid matching funds to help states avoid cuts in health care programs; and tax incentives for consumers to winterize their homes, buy hybrid vehicles, and make other investments in energy conservation, which would help stimulate the economy and reduce our dependence on foreign oil while making conservation affordable to middle-income families.
America has faced economic challenges before. We have overcome those challenges through the energy and ingenuity of the American people, and we will do so again. As we rebuild our economy, however, it is essential that we protect our seniors from the harm that now could result despite their hard work and thrift.
The effects of this crisis are felt by all-- in every community, business, and home. The effects are especially damaging to our seniors. Retirees over 70½ years old face a unique predicament: they are obligated by law and regulation to withdraw funds from their retirement accounts or face a tax penalty of 50 percent of the amount that should have been distributed.
Forcing our nation’s retirees to liquidate assets – the result of a lifetime of working and saving --at distressed prices makes little sense. Such an outcome would not only unfairly penalize retirees, but would also work against our efforts to stabilize the financial markets. At a time when patience and confidence are required, our retirees essentially are forced to sell stocks, turning what for some could be temporary paper losses into permanent real losses. Many retirees from throughout Maine have contacted me about this. As one said, his 401(k) is “eroding at an alarming rate,” yet he is being compelled to take this Required Minimum Distribution (RMD) at a time when his investments are at their lowest value.
There is an immediate remedy available. The Secretary of the Treasury has the authority to establish regulations governing the Required Minimum Distribution. I have written to Secretary Henry Paulson, requesting that he use this authority to suspend the RMD at least for this year and to waive any tax penalties that otherwise would apply.
In addition to helping our retirees weather the current financial storm, we must learn from this crisis and better prepare ourselves for the economic downturns that are inevitable in the future. For that reason, I also have asked Secretary Paulson to revise the regulations regarding the calculation of the RMD so that the amount of the Required Minimum Distribution is set with reference to the lesser of the account balance as it existed on the first day of the calendar year, and the account balance that existed on the last day of the calendar year. This revision would have the effect of reducing the size of any RMD in years where the value of an account declines precipitously, as it has this year.
I am also working with my Senate colleagues to identify ways that Congress could amend this law that is harmful to so many retirees.
Of course, the best way to address this problem is to stimulate the economy so that the value of investments will grow. I will support a second stimulus package to boost the economy as recommended by the Federal Reserve Chairman and other economists. Among provisions I have proposed are: a $50 billion infrastructure investment as contained in the Economic Recovery Act legislation I introduced in June, which would put people to work immediately in good construction jobs; measures that would help small businesses create and preserve jobs; a temporary increase in Medicaid matching funds to help states avoid cuts in health care programs; and tax incentives for consumers to winterize their homes, buy hybrid vehicles, and make other investments in energy conservation, which would help stimulate the economy and reduce our dependence on foreign oil while making conservation affordable to middle-income families.
America has faced economic challenges before. We have overcome those challenges through the energy and ingenuity of the American people, and we will do so again. As we rebuild our economy, however, it is essential that we protect our seniors from the harm that now could result despite their hard work and thrift.
