This brings me to something I've realized since working in business tax... and that's that Employer-based contributions are woefully under-used, but mostly because I don't think workers value them that much. The maximum for a SEP or 401k Profit Sharing is 25% of an employee's wage income. That means 20% of an employees compensation can be not only free from their income taxable income, but also free from BOTH sides of FICA/Medicare, which amounts to 7.65% for each party (employer/employee), or 15.3% total.jhogue wrote: ↑Tue May 14, 2019 3:51 pm WiseOne, your MTA pension freeloader is clearly an outlier who has spent the last 30 years studying up on how to game the pension rules in the one city in the country where monopolistic unions continue to prop up a bizarre system for the benefit of fewer and fewer workers. I suppose this sort of pension scheme will disappear in our lifetimes.
Defined benefit pensions used to be altogether common in the USA. Since then, there has unquestionably been a nation-wide shift toward defined contribution pension schemes. It seems to have worked quite well for Wall Street types looking forward to stashing away their next bonus, but not necessarily so well for the middle and working classes.
The former can be accomplished through employee contributions (lowered income tax), but not the latter. That means that the "penalty" between employer and employee for employees not valuing (and/or employers not providing) an employer contribution to retirement, is resulting in at least 15.3% of missed opportunity to help both parties save tax money.
Further, if you go with a 401k option, but very richly fund the Profit-Sharing portion, you can accomplish all that, but also have a vesting schedule too, which helps "vest" the employee with the future of the company to a certain degree that's not very possible in other ways.
I think these are drastically underused tools. It's a shame we live in a society where both employers and employees are too short-sighted to use/value these things. Even if we're seeing stagnant real wages, and if we have to accept that as a part of reality, it still makes sense to shift contributions from employee to employer.
Of course, municipalities should structure their damn pension so somebody can't game it in the final years. Hard to blame anyone for gaming a Pension like that. Don't even give them the option.