As the Trump administration and lawmakers consider amending the treatment of qualified retirementsavings contributions to fund tax reform, they will have toreckon the impact that would have on savings rates.

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They’ll be doing so with limited data on how “Rothification”would affect the $7.3 trillion defined contribution market.

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Lawmakers are reportedly considering moving all or some portionof the defined contribution market to a Roth, or after-tax model,to bring tax revenues into the 10-year budget window.

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Many in the retirement industry fear that would putdownward pressure on savings rates at a time when the country isoften described as being in a retirement crisis.

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On the one hand, lower marginal rates that result in highertake-home pay could offset the benefit of tax-preferences on 401(k) and other defined contributiondeferrals, which individuals can deduct from their taxableincome.

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On the other hand, some policy experts say it is conceivablethat tax reform could actually bump some savers into a higher taxbracket. Other lower-wage earners may not see their marginal rateimpacted by reform.

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Those possibilities raise the question as to whether or not theexisting tax incentives for retirement savings provide greater taxrelief than lower rates, at least for some Americans.

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“We just don’t know enough about what is being proposed, nor canwe predict the future,” said Jack Towarnicky, executive director ofthe Plan Sponsor Council of America.

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“It is impossible to say who is going to be a net tax winner anda net tax loser as a result of the changes,” added Towarnicky.

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The PSCA, an advocate for employer sponsors of retirementsavings plans, is part of the Save Our Savings Coalition, formedthis year to lobby to preserve the existing tax treatment ofretirement savings plans. The SOS Coalition includes AARP, employeradvocates, benefits consultants, and asset managers.

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A recent study published in the Harvard Business Review showed plan participantscontributed to traditional 401(k) plans and Rothplans at equal rates. Other data from record-keeper AlightSolutions—formerly Aon Hewitt—shows participants actually increasedsavings rates when they migrated to Roth 401(k)s.

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But those studies may not provide sufficient evidence of howRothification under tax reform would impact overall savingsrates.

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“They were only able to study the impact of Roth on a voluntarybasis, and the Roth option is likely limited to individuals whohave sufficient resources to continue the same 401(k) contributionrate and lose the tax exemption,” Jack VanDerhei, research directorat the Employee Benefit Research Institute, recently toldBenefitsPRO.

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“Those individuals most likely to be subject to a budgetconstraint under a Roth system may not be in the data,” addedVanDerhei, referring to the Harvard study. EBRI, which the SOSlists as an educational partner, is scheduled to release a studyassessing how Roth savings impact lower wage earners.

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Best evidence may be found in history of IRAs

The PSCA’s Towarnicky acknowledges that predicting participantand sponsor behaviors under a Roth-based retirement system isdifficult—if not impossible.

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While there is no existing experience of mandated Rothcontributions to draw from, he says ample evidence can be found inthe history of IRAs, and how contribution levels were impacted whenCongress adjusted the tax treatment on individual accounts.

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Since Congress created the traditional IRA in 1974, lawmakershave changed contribution caps several times. In 1981, lawmakersexpanded access to IRAs, in an effort to stimulate retirementsavings.

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The “universal” IRA allowed taxpayers who were enrolled inemployer savings plans to also make tax-deductible contributions toIRAs. The original IRA was only available to savers without accessto a workplace plan.

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Under universal IRAs, contributions skyrocketed to levels notseen since.

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According to the Investment Company Institute, contributionswent from $4.8 billion to $28.3 billion in the year after Congressexpanded access. They hit $38.2 billion in 1985, and $37.8 billionin 1986.

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But the gains were short-lived. With the tax reform bill passedin 1986, Congress eliminated universal IRAs as one way to offsetlower individual tax rates. Only savers under an income thresholdcould save in both employer plans and IRAs.

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The impact on contribution rates to IRAs was immediate andlasting. In 1987, contributions dropped to $14.1 billion. Theycontinued to fall through 2001, when contributions were $7.4billion.

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Towarnicky thinks the experience of tax reform in 1986 providesthe best, and perhaps only evidence of what could come underRothification and 401(k) contributions.

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“We have little experience with comparable changes to the taxtreatment of retirement savings,” he said. “Our one example isdisconcerting.”

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The White House has said it expects to release a first view oftax reform on September 25. Treasury Secretary Steven Mnuchin hasvowed to have legislation passed by the end of the year.

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That would be a considerable accomplishment. Tax reform in 1986was the culmination of more than two years horse-trading betweenCapitol Hill and the Regan White House.

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“Something as complicated as the tax system is going to requirea considerable amount of analysis,” said Towarnicky, who is among along list of policy experts across industries that doubt Congresscan meet the White House’s timetable.

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He said lawmakers shouldn’t overlook the impact tax reform in1986 had on IRA contributions.

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“Hopefully those facts won’t get swept under the rug,” saidTowarnicky.

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