Not to mention the HR nightmares:
1. What happens to those who 'break the rule' and then contribute to a tax-deferred account, either an employer or employee contribution.
a) Is it the employer's fault? The employee's? Is there a penalty? Who pays?
b) Is there a gov't list that has everyone's SSN and their total retirement plan assets as of 12/31 of the prior year that is distributed to all HR departments in every company? Or is it the employee's responsibility to tell the employer "you can't contribute to my 401k with the employer portion because my balance is too high"?
c) If the employee doesn't tell the employer, are the both fined? Just the employee?
2.
a) And if there is a company that has a pension plan, do you then re-write the entire pension equation if someone has both tax-deferred dollars in a 401k/IRA in a former employer's plan, as well as a pension they qualify for, and their total accumulated plan benefits exceed the 'cap'? It's no longer "years of service times x% per year", but some really whacky equation, because your total tax-deferred assets exceed the cap.
b) And then when interest rates change, the cap changes. Necessitating a new equation.
c) And when your portfolio fluctuates and your total plan assets is below the cap, it then necessitates another equation.
Oh, and interest rates changed again. Time to re-calculate everything. Oh, 3 executives just tried contributing to the 401k this pay period and are over the cap.
From what I have gathered, it can be difficult enough for accounting and HR departments to keep track and do elective deferrals correctly as it currently stands. Imagine having to also keep logs and track EVERY employee's 401k balances from an annual gov't report? Not to mention a big trust issue with companies having to have access to a list of every employee and their total retirement plan balances that they own, both inside and outside the company.
And what about HSAs and 529 plans? Do they count towards retirement assets? The HSA moreso than the 529 plan (since there's no penalty to withdraw from an HSA after 65) - but shouldn't both of them, in theory, be counted as tax-deferred plans, and be counted towards the tax-deferred plan cap? If not, I suppose there might be a sudden surge in "retiree education", especially distance learning at a semester over in Europe, or a "semester at sea" on a cruise ship.
1) You raise a number of technical questions. I think they all came up 40 years ago with the first IRA law, and we already have answers.
The contribution limit on IRAs applies to the sum of all IRAs that one individual may own. We know that complying with the contribution limit has been the individual's responsibility, not the IRA provider's responsibility. This asset limit would presumably work the same way. So
a) It's the employee's responsibility. If there is a penalty for non-compliance, it's the employee's penalty. (Just like IRA contribution limits.)
b) No. There is no gov't list of IRA contributions by SSN that IRA providers are supposed to access. Similarly, there is no need for such a list for retirement account balances.
c) I'm not sure about "fine", the penalty appears to be that you get a bad tax treatment. But, that penalty is entirely the individual's responsibility.
Note that this proposal explicitly says "use the same rules as current law" for IRA excess contributions. See page 169 here:
http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2016.pdf
2) Again, we've had caps on defined benefit pension plans for a long time. Some of your questions have already been answered.
a) No. Companies do not write new formulas for pension benefit accruals when they have people hit the current $210,000 cap. It's just a cap, the basic formula doesn't change. No reason to change it here.
b) No. The current cap changes periodically (it's indexed). There was no reason to change the formula in the first place, so there is no reason to change it when the cap changes.
c) Again, no, for the same reason.
There is only one new requirement for DB plans. The existing cap applies to all employees. With this proposal, the cap would be unique to each employee who happens to hit it. As in "Due to other savings, you need to freeze my DB plan benefits at the $94,000 I had accrued at the end of 2014. If my situation changes in the future, I'll tell you." So the programmer who builds the big employee files that support modern DB pension plans has to add one more field, and some HR person has to fill it on the rare occasions that somebody hits this limit.
The proposal does not include either HSAs or 529 plans. It doesn't increase the opportunities for "abuse" (if that's what bothers you) for those plans.