The American Society of Pension Professionals & Actuaries isurging the bipartisan "Gang of Six" to tread carefully on itsproposal to raise revenue by reducing tax incentives for retirementsavings.

Senate leaders on both sides of the aisle reached an agreementJuly 19 on a plan to cut the deficit by more than $4 trillion overthe next decade. More than $1 trillion is to come from reformingtax expenditures for health care, charitable giving, homeownershipand retirement.

But ASPPA asserts retirement plan savings are tax deferrals, notpermanent deductions and exclusions, which is how the Gang ofSix plan categorizes them. "Traditional retirement savings taxincentives don’t eliminate income tax on retirement savings, theydefer payment of income tax until workers retire and benefits arepaid out," said CEO Brian Graff in a statement.

What's more, he says, "the cost of the incentives is overstatedbecause most of the deferred taxes will be paid after theshort-term window used in Washington’s budget scoring."

Though tax-deferred retirement savings are one of the top threeU.S. tax expenditures, ASPPA researchers found the lost taxrevenue the government hopes to recoup by curbing tax breaksis based on inflated calculations. Earlier estimatesfrom ASPPA show the real cost of retirement savings incentives tobe 55 percent to 75 percent lower than claimed by government budgetanalysts.

When evaluating the cost of the tax deferrals associated withdefined-contribution plans such as 401(k) and Keogh plans, theCongressional Joint Committee on Taxation (JCT) and the TreasuryDepartment’s Office of Tax Analysis (OTA) both use currentcash-flow analysis, ASPPA argued in early June. Since workerswithdraw money from these plans only in retirement, the taxes paidshow up outside the 10-year timeframe used in cash-flow analysis,and therefore are “scored” as lost revenue, rather than deferredrevenue. These tax deferrals differ from tax credits or deductions,such as those for medical expenses or mortgage interest, since thetaxes deferred ultimately are paid.

"Failure to recognize this bad budget math could decimatesavings rates where Americans save most—at work," Graff said. "Weurge Congress to tread carefully. Raising short-term revenues byreducing the tax deferral incentives created to provide retirementsecurity for millions of American workers and retirees is not inthe long-term interest of American workers or their children.”