Plan sponsors are overwhelmingly against a tax reform package that would eliminate orreduce the tax-preferential treatment of defined contributionretirement plans.

In a survey conducted by the Plan Sponsor Council of America, anon-profit trade group that represents the interests of employersponsors of workplace retirement plans, nearly 95 percent of 443surveyed sponsors strongly or somewhat agree that eliminating orreducing pre-tax contributions to 401(k) plans would be a “bad idea.”

Early vows by the Trump administration to make tax reform a toppriority have led to speculation that the tax treatment of workplace retirement andhealth care plans are negotiable as a way to pay for significantreductions in individual and corporate tax rates.

Over the past several months, proposals that would partially orcompletely transition the country’s defined contribution system toan after-tax, or Roth-style system have circulated on CapitolHill.

The Trump administration and the Republican Caucus in the Houseof Representatives have been cryptic about whether the taxtreatment of defined contribution plans will be in play ascomprehensive tax reform is undertaken.

The non-partisan Joint Committee on Taxation’s most recent datashows the tax-preferred treatment of defined contribution planswill cost $583.6 billion in so-called foregone revenue between 2016and 2020. Traditional IRAs will cost $85.8 billion. The JTCprovides Congress research on the tax code.

Critics of proposals to use existing retirement plan taxincentives to pay for tax cuts argue they would have a negativeimpact on employee savings rates. They also claim some plansponsors would be incentivized to stop offering retirementplans.

PSCA’s survey, which included input from sponsors of micro- tomega-plans, shows that employers overwhelmingly agree that changingthe existing tax incentives would slow deferral rates.

Almost 94 percent strongly agree or somewhat agree thatemployees would be discouraged from saving if the tax incentive todo so was eliminated or reduced.

Most sponsors said they would continue to offer plans if theexisting tax-structure were changed.

Asked if they would continue to offer plans if the existinglimits on pre-tax contributions were reduced, more than 85 percentof respondents said they would definitely or likely continuesponsoring plans.

But that number drops to 70 percent under a hypotheticalall-Roth system.

Sponsors of micro-plans were the most likely to rethink offeringa savings vehicle if pre-tax contribution rates were reduced: 16percent said they might continue sponsoring a plan; almost 6percent said they would be unlikely to continue sponsoring a plan;and nearly 3 percent said they would definitely terminate theirplan if pre-tax contribution limits were reduced.

The consequences become more grave under the proposal to shiftall contributions to an after-tax basis: 16 percent of all planssaid they might consider dropping their plan, with 22 percent ofmicro-plans and 13.5 percent of plans with more than 1,000participants claiming they would be on the fence.

More than 5 percent of all plans said they would be unlikely tocontinue sponsoring a plan under an all-Roth requirement; and 4.4percent of micro-plan sponsors said they would definitely terminatetheir plans.

“Plan sponsors are very concerned about the potential impact oftax reform on their employees’ retirement savings,” said JackTowarnicky, PSCA’s executive director, in a statement. “Theseproposals could impact the more than 100 million Americans whoparticipate in tax-qualified retirement savings plans.”

Three-fourths of respondents to the survey already offer a Rothoption. Nearly nine in 10 plans with more than 5,000 participantsdo not offer a Roth option.

Among plans that do offer after-tax contributions, 30 percent ofsponsors said the option is utilized by 10 to 20 percent ofparticipants.