What Trump's Tax Proposal Means for Retirement Plans

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, I was reading a report from HSBC this morning that showed that millennials expect to retire at age fifty nine, which is two years younger than the working age average of six one and seems rather remarkable in an era of incredibly low benchmark yields. I want to bring in Peter Fendler for some perspective. Peter Fendler is a principal at Hub International New England LLLC, based in Portland, Maine,

who focuses on retirement accounts and advising people. And how likely do you think it is that this current generation of upcoming workers will be able to retire at age fifty I think it's really unlikely, given the fact that we're living longer and we're saving less than we ever have.

What's more realistic, I think seventy is the new the new sixty five and UM, you know, we're sitting with UH participants in retirement plans and looking at their average account balance and trying to project forward what they should be able to retire on. There's a pretty large disconnect between what they have, what they need, and what they think they need. You know, Peter, I wonder if you could just offer people a little bit of an insight into your business and also the changes that you have

seen in your business. I mean you UH were independent and now you're part of Commonwealth, you know, family of Advisers and UM and HUB International is of course made the acquisition. What if you could just describe your role on how it has changed over the last couple of years and what's foremost in your mind. UM. I think there's a lot of consolidation going on and there's going to be a narrowing of of what we do as retirement plan advisors under the new realm of the fiduciary

rule that's been promulgated recently. UM still in its finalization, but assuming it it maintains its current form, there are going to be a lot of advisors that UM make the election to get out of this business because of

the risk. UM, I think there's going to be Uh, we've got a conflict of interests that's inherent in the way that our retirement plan advisory work happens right now, where there's commission based resources and conversation formulas as well as fee based, and the fiduciary rule really attacks the commission based variable pay element of what's going on, and it puts a premium on being a fee based advisor

such as ourselves. UM So to that extent, I think with that increased liability under a commission based relationship with compensation, you're going to see those advisors that don't want to move to a fee base, or are not prepared to or don't have the infrastructure to go to that direction. UM, perhaps exit the market. Well let's let's ask a question that might seem basic, but are so many advisors for retirement?

Are they necessary? Is it is? It is a certain consolidation important, right, I think there is, I thinks a great question. I think there are a lot of advisors that have two or three plans that aren't really expert in the retirement plan space. But um, they have a friend that has a company and they become the advisor

just through kind of convenience and in relationship. But um, with the fiduciary standards that are coming out now and the attention on fiduciary capability, UM, it's it's going to be one of those things where it gets rolled up to people that are expert in that space. So how small do you expect this interest try to become? In other words, can you give us some perspective and how big is now and how small you expect it to become?

That's a good question. I don't I really don't know how large the advisor community is, but I think it's reasonable to expect that there's strinkage in the in the realm of twenty to thirty maybe that's a lot. Yeah, I think, well, where are those assets go? I think they will remain with advisors, but with advisors that do a lot more of the work that are specialized in the retirement plan space. So where is the area. Is there a specific specialized territory where advisors are really necessary?

Uh with respect to people crafting retirement plans? I don't think so. I think it's up and down the market. So it's it's not specific to a certain industry. It's not specific to a size of a company. Um, if you are an employer and you are launching a four one K plan or or four or three B plan in the nonprofit space, it's a complex world and it's not one of those things that you really want to

do for yourself. End employers or fiduciaries and they're looking to offset that fiduciary responsibility by hiring a co fiduciary through eight relationships which we are actually providing on the three twenty one level. That sounds expensive. Is it getting more expensive? Actually it's getting less expensive. Um, how much does it cost? So that that's a really good question

and it's a complex answer. What's happening is there so much attention on fees that that there's been a continual compression of costs and what we're doing and within our organization is saying, look, here is our baseline UH set of services that where we're acting as a fiduciary at the plan level, helping you with plan design, with fund selection, fund monitoring, and and educational fiduciary standards those things. That's one fee set and it's based upon our liability as

advisor UH and the side as a plan. The other is, do you want us to act as a fiduciary for your employees helping them with education, investment selection, one on one advice, um, And the fee for that is really time sensitive. How much are we doing, how how often are we sitting with your employees? It sounds like, but it sounds like at least that that the latter scenario um is Uh. It is, you know, part of the whole education process and is considered to be a positive

if you can afford it. It is And I think employers needed time to change it from a fee space to an investment space because what's happening in the United States going back to Lisa's original question, is that Americans are underfunded for retirement. We're woefully underfunded and um, we're kind of going along going forward, and if we stay that way and don't have enough money to retire, we won't, which has the upstream of higher costs for employees and

employers by employees not retiring on time. Well, we'd all like to retire on and I want to thank you very much for helping us. Peter Findler, he is a principal Hub International, New England. We're broadcasting live and the Commonwealth Financial Networks twenty seventeen Retirement Symposium in Boston. Well Oil has been on a wild ride of late. Just days ago it was above fift dealers of barrel. Now

it's down to forty seven dollars a barrel. Despite news that Saudi Arabia is tightening the screws on Qatar as punishment for its ties to Iran. And I want to bring in Javier blast who's our chief energy correspondent for Bloomberg Intelligence talking to us. Come just set the stage for us. Why did Saudi Arabia take these measures against Quaitar?

What exactly are the exact parameters of these measures? Well over the last few years that the relations between Saudia, Abbia and Catar has been strained for a number of reasons, in part because Catar support the Muslim brother could a movement that Saudi Arabia does not, in part because Qatar has been trying to add some mediator between the conservative countries in the uh in the in the goal for the Arab conservative countries in the golf by Saudi Arabia

and on the other side Iran. And also because of all Jasira, the Doja Base television station that Qatar controls has been quite critical of the Saudi regime. Those disagreements have been in crescendo over the last few months, and they erupted into a crisis last week. And now it's Saudi Arabia is retinally eighteen and getting several other countries behind it, several relations between itself and and and Doha.

That is something unprecedented because Saudi Arabian and Qatar in theory on the same side uh in the Gulf Corporation Council, and also because both both countries are close allies of Washington. Is a very unusual situation in the Middle East. Well, I was just looking at some of the headlines of the newspapers in the Middle East tier and the United aramids quitar armed terror to spread chaos. Uh Iran is encouraging Qatar to leave the sixth Nation Gulf Cooperation Council

and so on. And then you have also the same kind of thing in Saudi Arabia, and the response of the in Qatar is bark as you wish Qatar won't change its principles. Uh isn't the United States have a huge military presence just outside of Doha. It does and

you're absolutely right, and that's what I was emphasizing. It is a very unusual situation in wh when you see two Middle East nations or or one one group of Middle East nations led by Saudia, we in the United Arab Emidates and on one side and the other side Qatar. Because the both sides of these confrontations have close links

with the United States. Washington has a huge military operation, a military air base used on the Outskirs of Doga, the Central Command that oversees all the operations in the Middle East, and also in Afghani style, ten thousand more than ten tho troops. Yes, they's ten thousand troops, are huge air base and and the central Command that oversees all the operations in the Middle East and Afghanistan, all of that is based in Qatar. Yeah. Well, you know,

let's let's put this in perspective. Saud Saudi Arabia, Bahrain, and the United Arab Emirates and Egypt that they will all suspend air and sea travel to and from Qatar. What prompted this action? Now, I mean, did did President Trump's visit to the Middle East have anything to do

with us? Was in part that UM. Probably there was there was a bit of a link or that, because I think that the Saudia authorities have felt more UH in a stronger position of the after the Trump bus it UH to take a more um aggressive for or or or a more confrontational stanza towards towards Catar. There were also some comments carry by Katari stay home media and attributed to the mere Um criticizing the Saudist authorities

during the Trump bus. It very quickly those comments were deleted from Catari media and and the catarists they said that those those were not real comments, that they were the work of a hacker, but very few people believed that explanation in Saudi Arabia. So really a couple of events after the Saudi the Trump busy to to Saudi

Arabia really triggered this crisis. So let's talk about the market effects here, because the initial effect was the crude values rose as sensibly from the expectation the Catard be unable to ship as much crude and therefore that it would cramp supply to some degree, that gain has been

absolutely raised. And then some what's going on here? Well, uh, it's it's a very classic um spike in the oil market when we have some kind of geopolitical noise um during trading hours in Asia, the media reaction is used to buy by futures using case something really goes really bad, but immediately has become very clear today that the oil is continuing flowing from Qatar as our six hundred excuse me, six hundred thousand barrels a day UM, and the same with the l n G, which is a much much

more significant proportion of global supplies. So at the moment, I don't see any significant impact in the oil market unless this crisis really escalates, We're gonna leave it there, but boy, this is going to be a story that continues.

And also you have the issues of whether the Opeque nations are mindful and stick to their limits in terms of production, and because that was something that also is looking to be renewed well, and this also crazes the question what are the standards for some of these Middle Eastern nations to sanction each other or not. I mean, it sort of seems a little bit out of the blue.

Um cutting ties with a country that hosts an air base that has more than ten tho U s personnel, what can you say, I want to now bring in George Ferguson, our aerospace defense expert when it comes to Bloomberg Intelligence. Uh, Georgia wanted you to give us just perhaps a preview of what you understand the President may be speaking about in just a few moments having to do with privatization of the air traffic control system. Hey m,

good morning. Yeah, we had we expect the President to announce something of a privatization of air traffic control, a structure that's going to look pretty similar to nav Canada. And essentially what it would do is, um create a separate entity that's probably gonna that's supposed to be removed from government bureaucracy to oversee both the day to day air traffic control as well as long term investment in

that in the systems that support air traffic control. So, um, you know, we've we've heard that President Trump is laying at his vision, but it's going to include a separation of air traffic control operations from the Federal Aviation Administration. What's the biggest opposition to this? You know, I think that um, I don't know that there's a huge amount of opposition here. I think that there is a bunch of jockeying between the interested parties about who's going to

pay in the future. Um. And for the interested parties, let's get a sense of of sort of who's on what side here? Sure, so interest party is going to be airlines, of course, would be the most interesting party because they're most affected by air traffic control, But other users of airspace are going to be business aviation and general aviation, and so I think those three parties are

trying to figure out who's going to pay. I think they all would probably agree that they want this air traffic control system out of the federal government because they're their modernization efforts that I think all of them would agree should have happened by now are going too slowly or risk of not occurring the way they thought they would occur. Um. So again, I think what we have is a discussion about, Okay, what's the right fee for the business aviation community do you pay? What's the right

fee level for the airlines to pay? And then g a sort of general aviation is in the mix too, but much less of a user. George, I want to know is is the air traffic control system in the United States? Is it considered world class. No, not now. So if you talk to some people, you know, talk to some people at different groups indeed see that advocacy groups, and they'll tell you that, you know, they're still using paper strips with airplane numbers on it, uh, you know,

to line up airplanes for approach and departure at major airports. Um. Some of the computing systems are fifty years old. UM. So that's clearly not state of the art. And meanwhile technology is evolved so that we can get a lot

better information on each individual airplane. Instead of using radar, which we use now, we can have them uh collect information on their speed and their exact location from GPS signals and then shoot that down to ground stations or even back up to satellites and provide air traffic controls of the much better picture of uh, the air traffic environment. And they can use that to space airplanes much closer and make make the system a lot more efficient. UM

So that's sort of where we want to go. We're not there yet. We're still using radar and fifty year old technology computing technology. George do a sense of how much it would cost to bring the US aviation system up to speed. Um. So, look, I think nobody really knows this number correctly. I'll tell you that the f a A says it's a thirty billion dollar number, and they think that roughly thirty million. They think fifteen billion of that is it is something the f a A

has to spend. Any other fifteen billion of that would be equipment in the airplane to the airplanes need this equipment to shootout the signal that tells their direction, their speed, their exact location, things like that and the Sorry, now I'm struck by the idea that it probably could save

airlines money. No. I mean, basically, if things were more streamlined, they wouldn't have the delays, they wouldn't have to do the vouchers as much to compensate people who have gotten bumped in, uh you know, off of really crowded planes because of delays. I mean, it seems like it would actually save money and there could be some way of you know, expediting this money saving aspect it. And so the airlines are they're the ones that have absolutely showed

their cards. They're absolutely in favor of this privatization. If you look at some of their organizations like airlines for America, which is the group organization that represents them. UM. They've got papers out where they're absolutely in favor of getting air traffic control out of the federal government and into sort of a semi private organization. George, is there any is there any precedent for doing this? Uh So, internationally, we do have some precedents for I think one of

the more prominent ones is UM is NAV Canada. UH. You know, if a NAV Canada was spun out of the federal government UM airline. Actually, airspace users, including the majority funded by the airlines, pay the fees UH for air traffic control, and Canada they issue bonds to buy you know, UH, capital equipment for long term investment, and they pay those bonds off with excess user fees, and and they're in a situation now where they're actually lowering sees. So it seems like in Canada UM this type of

system has been quite effective. I think the airlines are looking at that thinking they'd love to have that. You know, Georgia, I'm surprised that this is not already happening, and I'm wondering, you know, there's been a lot of discussion about the problem with air traffic control in the US. What's being done right now, if anything, to sort of bring it up to speed. Yeah, So the FAA is marching down

a m marching down a road to modernized airspace. A lot of it is about this next gen air traffic control and these systems on airplanes that will shoot their um their coordinates to ground stations. UM. So it is

being done. Airlines are critical that it's being done slowly. Uh. If you read some of the position papers, they're very concerned that there's not the maybe the project management skills that you might find in a more nim bull private organization inside the f A A. You know, there's concerns about how the FAA funds themselves. They have a they have a six billion dollar trust fund in them and Congress sort of dips into that trust fund to pay

for operational costs every year. So maybe there's a lot of concerned again and met the skill set in f A A kind of about the funding, long term funding, and that's the reason people want to see it out of there. But they are marching down the road trying to try to implement modernization. I just want to follow up on the funding issue that what makes anybody think that the private corporation is going to be more ad

child in terms of funding then the government. I thought the funding was at least some members of Congresses that the funding has been held up by Congress and it's been intermittent, so that that's one of the reasons why that big revamp of the air traffic control system has

been so sort of caught up in a budgetary no turbulence. Yeah, the thought is to get it away from some of the political influence of Congress, Right, So, uh, Congress sort of always always struggles with that challenge where somebody wants to build done and uh, you know, a congressman from this state of that state wants to improve their small airport, and they try to pull money out of some of these trust funds and such to fix their small problem, which might not be a big, you know, a big

issue in the in the broader scheme of things. And so I think the challenge is to get it out of the political um arena so that funding can be set aside and and um and projects prioritized by necessity rather than the political influence. And again, Congress is using what you'd consider sort of long term funds trust fund kind of money to fund operations. Um, you know, you could, you could bring in consultants and perhaps optimize operations, improved

computer systems and reduce the cost of operating it. Congress doesn't always have an incentive to do that either. So yeah, George, when you talk about political considerations, I think about what Chan and Pettapeece said just a few moments ago. Chan and Pettipeces our White House correspondent for Bloomberg, and she was talking about all the things that are going on right now, and we are awaiting the president right now.

That's right, We are awaiting the president who is expected to make remarks on this air traffic control reform initiative that we're talking about with George Ferguson. George, why is President Trump coming out today with everything going on with

infrastructure spending? Although I suppose this could be part of infrastructure spending, uh, you know, with everything that's going on with his travel ban, etcetera, with tax reform, um, why why now is there something in particular that he is addressing. I mean, I think this is just part of his broader agenda. You know, maybe he said if a structure was going to be an important part. You know what

we heard. I heard airline executives talking about this um right after the election, and even before he had made it to the White House. You know, he that she got installed as president about this being a priority. So, uh, it's been on his agenda. I think he's bringing it forward now. I mean, whether there's some timing around other news in the world that he's trying to distract from.

I'll let Shannon sort of answer those questions. But I think that there's always been part of his agenda, and so maybe he also thinks this is a bit uh costless, you can get it done quicker um and sort of get his agenda and moving that way. But maybe some

of that sort of thought process there too. George. While we have you, though, I want to ask you something about the industry, because I know you put out some original research today and I wonder if you could tell us about production rates and how each of the individual companies, whether it's the Boeing but there's seven three seven, whether you know a ye Neo, if you could just give

us an update on that. Yeah, So from the air framers PIM, we are we are bowling an airbus being the largest two manufacturers of commercial airplanes in the world. They're both ramping up production of the seven, their narrow body airplanes, which are their most important, most profitable airplanes, which is good stuff for them long term. Uh. You know, we're gonna be at production rates that I think they're

going to be around fifty for each company. UM the UH. Again, these are sort of the the prime money maker airplanes for these companies. UH, And so longer term it's very good news for their profitability and their cash flow. The challenge is short term that these are new versions of these airplanes that they're they're introducing as they ramp up there and the seven thirty seven Max. So there's some costs to the UH, to the learning curve of building

those airplanes. So we'll watch that. That probably hurts them a little bit to the end of this year. But again as they get those the productions of those airplanes down, UM not out to help their profitability cash flow. And what we're watching in these companies right now is wide body demand. I'm seeing some rumors out today that Airbus may even cut production of the A three eight more. UM that airplane hasn't sold well, it's the biggest airplane

in the world. It's a real challenge to get it into markets, you know, into into an Airport's all of those tickets and flying to a single airport not a dilute the price you sell your tickets for to fill the airplane. So it's not surprising we're getting ready to go into Farnborough air shows. So we're gonna watch those wide body owners closely, especially three eight. But the other two wide buddies are having challenges are the three thirty and the Triple seven, the three thirty from Airbus and

the Triple seven from Boeing. Generally we're seeing, um, we're seeing weakness and long haul ticket prices for overseas travel ticket prices, and that means that airlines and less stores are less excited about taking the newest long haul airplanes. The Triple seven and the three theory don't have as much a backlog as some of the new airplanes have just been introduced. Uh So we keep watching that wide body space and trying to figure out one that's gonna

when the dynamic dynamic there's going to improve. Thank you so much, George Ferguson. We really appreciate you giving us the perspective as we await President Trump's comments about air traffic control reform, which is badly needed in the United States. George Ferguson is our senior Aerospace, Defense and Airline analyst

for Bloomberg Intelligence. You know, despite the sell off and municipal bonds at the end of last year, they have come roaring back, and there is a story on the Bloomberg today saying that US state and local bonds are the pricest against treasuries since the recession. How are these

figuring into people's retirement plans? I want to bring in Marci Sprofits Principle at Boult Donnally and Suprofits consulting Group in Worcester, Massachusetts, and Marcy, as we talk about President Trump's tax plan and how people should prepare for retirement,

how much do municipal bonds play into this? Because they are tax free and they were a popular investment, and they have been traditionally uh popular investments for wealthy individuals who want to preserve that tax free benefit over the long term. Do you think that these investments are still warranted because there will not likely be that much of

a change to tax laws. Well, I think with um Obviously, with a Republican White House as well as a Republican controlled Congress, we are very likely to see some form of tax reform over the next couple of years. It's um so it's probably not so much a question of if, it's a question of when. Uh. We we don't know what this point, big unknown exactly what that will look like if um, if the rules are changed in the

way that that would be Trump's calls. His biggest tax reduction is on the corporate side of things, right, moving from a rate down to about fifteen pent um. It's very difficult to tell at this point how his tax plan will affect individuals because it's very light on specifics. Um, we don't have much detail there. So he wants to reduce the number of tax brackets, he wants to raise

the exemptions, he wants to eliminate certain deductions. So it's very hard to judge without specifics whether people's taxes are going to go down so much that municipal bonds wouldn't play much of a role. So this this creates kind of a problem if you're advising clients, right because you have to have long term planning and if there's a high likelihood that there will be some kind of tax reform which will probably change the investing dynamic for wealthier

individuals or anyone who's planning for retirement. How do you come up with and some advice. Well, that's a very good question, Lisa. It's very hard to plan in in this environment. UH, specifically as it relates to municipal bonds. I do think for the average well off investors there's still going to be a place for that. I think the bigger issue we see with tax or form is

how the changes might affect UH Middle America. Because of possible changes to I ras and four oh one keys and the tax preferences that they have, there's gonna be some way to pay for the major tax cuts that Trump wants for corporations and retirement plans tend to be a big juicy target there because of their current tax preferences and because of the way the government co currently scores revenue, they only look at a ten year period.

Hold on a second, Does this mean that you think that they're probably will be some kind of increase to the amount that the raw fires and the furrow one ks are taxed? Um? No, that that's that's not exactly what I'm saying, but there have been suggestions that the limits on contributions perhaps be cut back to help pay

for corporate tax reductions. That have been suggestions that instead of allowing people to contribute on a pre tax basis, that they only contribute on an after tax wrath basis, because today that increases revenue and allows the government scoring which only looks at a ten year period, to pay for the corporate tax cuts. That's our concern. Marcy. I know that you've done a work for the American Association.

You've t to find before converse about the fiduciary rule and so on, what is the most pressing issue that you would like to bring to the attention of the industry, whether it's rollovers, whether it whatever that you feel h strongly, because sometimes you just can only get one thing in people's minds and get everyone behind. What would that be Are you talking specifically regarding the fiduciary It could be anything in your in your particular industry, because you kind

of have a broad understanding of it. Um well, looking at the fiduciary rules, I think a lot of people are very much in agreement with the concept do everything in the best interests of the client. I think the problem lies in the execution because the way those rules were written, the oversight is in the plaintiff attorney's hands and UH and that's something we would certainly like to see changed. On the tax reform front, we that most members of Congress can um understand that the retirement tax

preferences are permanent deductions. The way mortgage interest is that that money comes back into the system when people take their money out of retirement plans. It's taxable at that point. It's just the government scoring doesn't look at it that way. So those are two things. I know you asked for one,

but UH, two things that we're really focused on. How are you advising clients at a time of pretty low interest rates across the board when you do have an increasing number certainly have pensions going into risk your and risk your assets, and you have investors who you have individuals who have to save up bigger and bigger cushions for the uh, the the age that they're trying to get to to retire, which is getting older and older.

What do you advise them? What's the biggest you know, UH, concern that you have as far as people sort of ignoring some of the risks versus uh, the potential rewards. Well, I think, as we all know, it's all about the time horizon. So for young people who are investing for retirement today and have a lot of years before they're going to actually access that money, they have a lot of time to ride those ups and downs. And if you look at the market historically, we know that over

longer periods of time the trend is up right. So the people who are much closer to retirement, it's very difficult in this low interest rate environment to take out a lot of risk and yet get the returns you need. I want to thank you very much for spending time with us. Marcy Provitz is the principal at Boulay, Donnelly and Consulting Group, and they are experts when it comes to retirement planning. Thanks for listening to the Bloomberg P

and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud or whatever podcast by from you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Blueberg Radio.