Sens. Bernie Sanders (I-Vt.) and Chris Van Hollen (D-Md.) on Thursday introduced legislation that takes aim at tax breaks for corporate executives’ retirement plans.
“It is outrageous that a corporate executive in America can get unlimited, special tax privileges on hundreds of millions of dollars in savings, while an ordinary worker can only get tax deferment of up to $19,500 on a 401(k),” Sanders said in a statement released by his Senate office. “We are going to end these tax breaks for CEOs and use that money to protect 1.7 million workers who are worried about a decent retirement as they face instability in their current pension plans.”
The bill comes as Sanders has emerged as the front-runner in the Democratic presidential primary. Sanders and other Democratic politicians have proposed making tax increases on the rich a top priority in an effort to combat inequality.
Companies can offer executive retirement plans under which highly paid employees of a company can defer compensation at retirement or afterwards. Executives don’t have to pay taxes on the compensation until it is distributed. Unlike 401(k) retirement plans, there is no limit on the amount of money that can be contributed to the executive plans on a tax-preferred basis.
At the request of Sanders and two other Democratic senators, the Government Accountability Office (GAO) conducted a study of executive retirement plans.
The watchdog found that as of 2017, more than 400 large public companies provided these plans to almost 2,300 executives, and accumulated plan benefits totaled about $13 billion. The GAO urged the IRS and the Department of Labor to increase their oversight of the plans.
Under the bill from Sanders and Van Hollen, deferred compensation in executive retirement plans would become included in taxable income when the money vests, rather than when it is distributed.
Sanders and Van Hollen said that the bill could raise an estimated $15 billion in federal revenue. Revenue raised from the bill would be transferred to the Pension Benefit Guarantee Corporation to help shore up multi-employer pension plans. Union members often participate in multi-employer pension plans, and some of these plans have been underfunded in recent years.
The bill would also require the Labor and Treasury departments to implement the recommendations made in the GAO report, and it would boost disclosure requirements of executive retirement plans.
The Wall Street Journal, which first reported on the bill, said that similar changes to executive retirement plans had been included in initial versions of Republicans’ 2017 tax plan but were not included in the final law after companies complained.
“Republicans and Democrats alike have called for ending these tax breaks, and it’s past time to get it done,” Van Hollen said.