If you work in the defined contribution (DC) retirement plan market, this is a good time to become familiar with proposals circulating in Washington for whittling back DC plan tax benefits. These proposals have a common goal of raising federal tax revenues to reduce the deficit. Retirement plans are an inviting target because they are the second largest "tax expenditure" in the federal budget, costing $138 billion in the 2012 fiscal year (behind only the exclusion for employer-sponsored health insurance, at $171 billion).

A useful resource for understanding three leading proposals, and employer attitudes toward them, is a recent survey conducted by Matthew Greenwald & Associates and sponsored by the American Benefits Institute. A summary of findings is available in PDF.

The survey shows that employers have strong negative attitudes toward two specific proposals, and would be less likely to continue DC plans if Congress adopts either. They are:

  1. Ending the exclusion of all contributions (employer and employee) from taxable income, in return for a 25% federal tax credit on total contributions;
  2. The so-called "20/20 proposal," which would cap total contributions at the lesser of $20,000 or 20% of compensation, as opposed to $51,000 and 100% now.

Employers are a bit less negative toward a third proposal, which would pare back the excluded portion of contributions for high-income taxpayers only. (A 35% bracket taxpayer would be limited to a 28% exclusion.)

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