Proposed cuts to retirement tax incentives in the name of fiscal reform will damage American workers’ retirement security.
Brian Graff, CEO and executive director of The American Society of Pension Professionals & Actuaries (ASPPA) made these comments in response to the 20/20 proposal by the Bipartisan Policy Center at a Senate Finance Committee hearing about Confronting the Looming Financial Crisis.
“While changes need to be made to confront the looming fiscal crisis, proposals to make drastic cuts to retirement tax incentives in the name of fiscal reform come at too high a cost to American workers’ retirement security,” he said.
“Recommendations from the Bipartisan Policy Center’s Debt Reduction Task Force advocate slashing the 401(k) plan contribution limits to the lesser of 20 percent of pay or $20,000. This so-called ‘20/20’ proposal shows a real misunderstanding of how employer-sponsored retirement plans actually work. Proponents of these kind of cuts claim very few savers would be affected, but in real life many workers would see employer contributions to their 401(k) plans reduced or even eliminated.”
Graff added that 401(k) plans and employer contributions to these plans are a critical piece of the retirement puzzle. He believes the 20/20 proposal would damage these plans.
“Data from the Employee Benefit Research Institute (EBRI) shows that reduced limits result in lower account balances at retirement for all income groups. Small business would be hit hardest. Younger workers in the lowest income quartile in small business plans could expect a 14 percent reduction in account balances at Social Security normal retirement age if this proposal became law,” he said.
The ASPPA believes that passing this plan would reduce contribution limits and the availability of employer-sponsored plans and contributions, a plan which would not solve the long-term deficit but would damage American workers’ retirement security.
“The retirement savings tax incentive is a deferral, not a permanent exclusion. Every dollar deferred today is taxed tomorrow when it is withdrawn as retirement income. With illusory revenue gains and reduced retirement security, the so-called “20/20” proposal should not be part of deficit reduction or tax reform. We can’t afford the hit in retirement savings American workers would take from this flawed policy,” he said.
ASPPA is a national organization of more than 8,500 retirement plan and benefits professionals that serves as the educator, voice, and advocate for the employer-based retirement system.