EBRI Testifies at Senate Finance Hearing on 401(k) Tax Proposals

VanDerhei

 EBRI presented new research before a hearing by the Senate Finance Committee last week on who would likely be affected—and by how much—if the existing level of allowable tax-deferred savings in private-sector 401(k)-type defined contribution retirement plans is changed as some advocates have proposed.

 At the Sept. 15 committee hearing, EBRI Research Director Jack VanDerhei presented new modeling results showing that workers with the lowest incomes would be among the biggest losers under various proposals to reduce current-law tax limits for savings in 401(k)-type plans

 “As expected, highest-income workers generally would be the most affected if federal tax limits in 401(k) type plans were lowered,” VanDerhei said. “But the surprising result we found is that the lowest-income workers would also be very negatively affected, and many report that they would reduce contributions or stop saving in their work-based retirement plan entirely, if the current exclusion of worker contributions for retirement savings plans were ended.”

 As part of the effort to lower the federal deficit and reduce “tax expenditures” (as tax advantages are termed), two major proposals have surfaced:

  •  Most recently, a proposal by William Gale of the Brookings Institution that would replace existing 401(k) tax deductions with a flat-rate refundable credit that serves as a matching contribution in a retirement savings account, using either an 18 percent credit or a 30 percent credit.
  • The so-called “20-20 cap,” included by the National Commission on Fiscal Responsibility and Reform in their December 2010 report, “The Moment of Truth.” 

 Links:

Press release about EBRI’s testimony is online here.

VanDerhei’s full testimony is online here.

Senate Finance Committee hearing website is online here.

PlanSponsor news report is online here. 

PlanSponsor column, “IMHO: Working ‘Outs'” is online here. 

Business Finance, “Changes Coming to Retirement Plan Tax Treatment?” online here.

Daily Finance, “The Next Big Threat to Your 401(k): A Tax Break Shake Up”




See full article from DailyFinance: http://srph.it/pecler

About ebriorg
President and CEO, EBRI

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