Obama's budget: What advisers need to know

SEC would get funding boost; limits placed on retirement-savings tax breaks for wealthy

Mar 4, 2014 @ 11:33 am

By Mark Schoeff Jr.

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(Bloomberg News)

The Securities and Exchange Commission would receive a funding increase while the wealthy would see their tax breaks curtailed in a budget the White House released on Tuesday.

Under the $3.9 trillion budget proposed by President Barack Obama for fiscal 2015, the SEC would get $1.7 billion, compared with its current $1.35 billion funding.

Although the budget released by the White House lacks specifics, the $1.7 billion appropriation would fund the hiring of 240 additional investment-adviser examiners -- and 316 more examiners overall -- for the Office of Compliance Inspections and Examinations, according to SEC staff. Last year, the SEC sought to add 250 investment-adviser examiners and 325 total OCIE examiners.

The SEC has made it a priority to increase its coverage of the nearly 11,000 registered investment advisers. The SEC examines only about 11% annually.

“We would expect this budget would allow the SEC to staff up OCIE and step up its oversight of investment advisers,” said Neil Simon, vice president of government relations at the Investment Adviser Association.

Mr. Obama's budget will again face stiff resistance in Congress, which is split between a Republican House and a Democratic Senate. In the fiscal 2014 budget approved in January, Congress provided a $29 million increase in the SEC budget, which was $324 million less than the commission's request.

Although she was rebuffed in the last budget round, SEC Chairman Mary Jo White could still build support for more SEC funding, according to Mr. Simon.

“Mary Jo White, who is doing a good job on congressional relations, is still a relatively new player in town,” he said. “She needs to forcefully make the case on Capitol Hill.”

The overall budget proposed by Mr. Obama also includes $56 billion in new spending on education, job training, infrastructure, research, and public health and safety. He proposes to pay for the investments in part by curbing the amount of money that the wealthy can save for retirement.

Mr. Obama's budget would prevent new tax-deferred contributions to retirement-savings accounts for those vehicles that have already accumulated $3 million or more in savings.

“Our tax system provides benefits to wealthy individuals who save, even after they've amassed multimillion-dollar retirement accounts,” he said at an event in Washington on Tuesday. “By closing that loophole, we can help create jobs, and grow our economy, and expand opportunity without adding a dime to the deficit.”

Gary Josephs, managing principal at the Retirement Benefits Group, is skeptical of the idea.

He said that it could diminish investors' enthusiasm for building their retirement accounts.

“It opens up a Pandora's Box. You're giving the government carte blanche to go out and change the rules,” Mr. Josephs said.

“Where will they stop with the changes? You run the risk of participants losing faith in the system," Mr. Josephs said.

The budget also proposes to raise $650 billion over the next decade to reduce the deficit in part by limiting the value of tax deductions and other incentives to 28%, which means that people in higher tax brackets, up to the top 39.6%, wouldn't get the full benefit of the breaks.

Mike McNamee, chief public communications officer at the Investment Company Institute, said that the ceiling would reduce the number of workplace retirement plans.

“Limiting tax deferrals for the highest three income brackets [33%, 35% and 39.6%] would substantially change the tax treatment of retirement contributions and undermine retirement security by reducing incentives for businesses to provide retirement plans,” he wrote in a blog post.

Mr. Obama's budget also would implement the so-called Buffett Rule, requiring millionaires to pay taxes on at least 30% of their income, after charitable contributions.

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