September 15, 2011
For additional information:
Jason Hammersla

Employer-sponsored retirement plans play vital role in ensuring national, personal financial security

Council tells committee: tax benefits for employee savings should be maintained

WASHINGTON, DC — WASHINGTON, DC — "The employer-sponsored retirement system helps millions of American workers at all income levels accumulate retirement savings. As Congress considers broad-based tax reform, we urge lawmakers to ‘do no harm' and avoid actions that would discourage participation in employer plans," American Benefits Council President James A. Klein said today.

The Council's statement for the record for the Senate Finance Committee hearing, Tax Reform Options: Promoting Retirement Security (submitted along with the American Council for Life Insurers), describes the many successes of the current system and the critical tax incentives that make employer-sponsored plans so effective — both as a driver of economic growth as well as a source of personal financial security.

"Some have suggested fundamental changes to the tax treatment of 401(k)s and other defined contribution plans. Such proposals are deeply flawed and should be rejected," Klein said. "Economic studies have demonstrated that the so-called "20/20" proposal advanced by the Simpson-Bowles deficit reduction panel, under which the cap on annual employer and employee retirement plan contributions would be lowered to the lesser of 20% of the employee's compensation or $20,000, would depress retirement savings for all income levels. Another proposal outlined at the hearing today would replace all tax exclusions and deductions for retirement savings with a flat 18 percent tax credit. This would cause a steep decline in retirement plan sponsorship and dramatically reduce retirement savings," said Klein.

Among the other points discussed in the Council's statement:

  • The broad coverage and participation in employer-sponsored defined contribution plans results from the existing tax incentives that motivate employee saving and that encourage employers to maintain and contribute to retirement plans.
  • Employees participating in employment-based plans benefit from enhanced bargaining and purchasing power resulting from economies of scale, fiduciary decision-making and oversight, and access to beneficial products and services. Moreover, Congress has established detailed rules to ensure that benefits in defined contribution plans are delivered across all income groups.
  • The trillions of dollars in retirement plan assets, representing ownership of a significant share of the nation's pool of stocks and bonds, provide an important and ready source of investment capital for American businesses, helping companies grow and add jobs to their payrolls and raise employee wages.
  • Dramatic changes in the rules and incentives governing retirement plans are not warranted and would be perilous. Unintended consequences are likely and we simply cannot afford to gamble with the retirement security of working and retired Americans.
  • Proposals that purport to increase short-term Federal tax receipts by redirecting, eliminating, or eroding the existing retirement savings tax incentives achieve those additional taxes largely because individuals are saving less for retirement.
  • Under standard budgetary methodology, the taxes an employee will pay when he or she retires and starts taking taxable plan distributions generally occur outside the budget window. Proposals that reduce retirement savings today will mean the government actually collects less revenue in years outside the budget window because retirees will have less taxable retirement income. As a result, any overall budgetary savings that might result would be considerably smaller than the short-term revenue estimates might suggest.
  • Any changes to our national retirement savings policy should build upon our existing and successful tax incentive structure so that it works even more effectively to facilitate retirement plan coverage and savings by American families.

"In the context of deficit reduction and tax reform, many observers have raised the challenges America will face in the future if we do not make the correct choices now. Employer-sponsored retirement plans help provide and preserve personal financial security for the future. We urge the Senate Finance Committee and all of Congress not to make impulsive or short-sighted changes that would undermine the current system," Klein said.

For more information, or to arrange an interview with Council staff on legal implications of the health care law, please contact Jason Hammersla, Council director, communications, at 202-289-6700.

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.