Obviously the fiscal cliff is on everyone’s mind, but what does it mean for sponsors of 401(k) plans and retirement plan participants?
If nothing is done to avert the fiscal cliff, tax rates will go up, which “generally will make 401(k) deferrals more attractive because that’s what 401(k) deferrals get you, an ability to defer taxes,” said Brian Donohue, a partner with October Three LLC in Chicago, Ill.
The reduction in 401(k) contributions would have a major impact on low-income workers.
“Employees earning $30,000 or less rely almost exclusively on company matching and Social Security for their retirement,” Goldstein said. “Under the proposal to limit 401(k) contributions, low-income employees could see a 20 percent reduction in employer contributions, which would hurt their retirement nest egg.”