Major tax law changes that would affect retirement plans probably won’t take place in 2013, but the retirement community is watching regulators and the U.S. Department of Labor very closely.
Ed Ferrigno, vice president of Washington affairs for the Plan Sponsor Council of America, said that his organization is watching Congress’ tax reform and deficit reduction discussions to make sure there aren’t any provisions in them that would negatively impact retirement plans and plan sponsors.
“We got through the first round without any adverse impact, but President Obama and the Democrats have made it clear they are looking for additional revenue,” he said.
Brian Graff, CEO and Executive Director of The American Society of Pension Professionals & Actuaries, said in December that the President’s proposal of a 28 percent cap on the current tax benefit for itemized deductions and exclusions (35 percent for charitable contributions) would amount to double taxation when those contributions are paid out at retirement.
That’s because small business owners with a marginal tax rate of over 28 percent would pay a surcharge on elective deferrals to a 401(k) plan the year the contributions are made and then pay tax again on the full amount when that money is taken out during retirement, he said.
Ferrigno added that Congress specifically is including retirement plan contributions and employer-provided health care in those caps.
The PSCA and ASPPA are against any rules and regulations that would make it harder for workers to save for retirement and would also make it harder for companies to offer retirement plans.
Last year was a big year for plan sponsors and providers, with the implementation of fee disclosure regulations. Now the big issue is whether or not the default disclosure can be electronic or if it has to be paper, Ferrigno said.
“Our approach is that the default should be electronic disclosure unless people request a paper copy,” he said.
“There’s an overwhelming consensus that participant fee disclosure didn’t elicit much activity from participants, despite significant costs. That’s a little disconcerting,” he said. “Does it make sense? What can we do differently? Electronic disclosure is one way to lower costs.”
The number one thing plans are trying to achieve is stability, “which is critically important,” Ferrigno said.
Some stability was achieved in the retirement community through the Pension Protection Act of 2006. Plan sponsors are looking for that same kind of stability in the defined contribution world.
They also want to help make the system better.
“If you tell a small business owner he cannot fully defer his contribution, then where is he at?” Ferrigno said. “Denying someone a deduction or exclusion is not a one-time, clear cut event.”
He added that “anything they do to reduce the attractiveness of a plan to a small business owner is going to hurt the rank and file workers for sure.”
Congress has mentioned it wants to tackle corporate tax reform, but that can’t be accomplished without first tackling individual tax reform, Ferrigno said. “The Rs want to reduce deductions in exchange for lower tax rates. The Ds want to reduce the ability to have deductions to generate revenue. I don’t see that getting worked out.”
Another issue PSCA is interested in is the “staggering array” of disclosure requirements from Treasury and the DOL. The industry needs to figure out what makes sense, what doesn’t and consolidate and simplify those disclosures, Ferrigno said.
Health care continues to dominate the time and resources in the benefits community. The unknowns surrounding The Affordable Care Act and its impact on benefits will make it hard for employers to dedicate more resources to their retirement plans, he said.
Finalized rules governing target-date funds and qualified default investment alternatives (QDIAs) are also on deck in 2013.
Bob Kaplan, vice president, national training consultant for ING U.S. Retirement Services, said at the end of the year that he expects Congress to make a move on qualified pension plans in 2013.
Bills proposing automatic enrollment IRAs for companies with 10 or more employees will be resurrected, and if companies don’t offer a plan, they can at least offer the ability for employees to have money deducted from their paychecks and be deposited into a qualified IRA.
The Plan Sponsor Council of America also is concerned with the DOL’s reproposal of its fiduciary rules, which is due out in several months. Phyllis Borzi, assistant secretary for the DOL’s Employee Benefits Security Administration, has said in recent interviews that the new rules will reflect changes requested by the retirement community.
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