It is no secret that our country’s federal deficit is quite steep, but is retirement savings the correct place to look for money to reduce this problem? Currently, Congress is strongly considering removing all or part of the tax incentives, including pre-tax contributions, for 401(k) plans.
This is viewed as a method to increase federal tax income, based on the current budget scoring system. The last time Congress considered tax reform in 1986 it cut the 401(k) contribution limit by 70%, which had a devastating impact on the ability of American workers to save for retirement.
Brian Graff, Executive Director and CEO of the American Society of Pension Professionals & Actuaries, explains that this search for funding is “a lust for revenue.” The main worry is that retirement is already tough enough to plan for and that the government’s plan for tax reform to existing 401(k) plans will only make this process more difficult for Americans.
As negotiations continue in Washington, there is a strong urge for the general public to make their voices heard and take action to prevent this from happening again. Many members of Congress are unaware of the critical impact their actions may have on American investors and our industry. Stats from a 2012 survey claimed, “employers would be less willing to sponsor 401(k) retirement plans if Congress alters the existing tax treatment.”
More than 500 employers were asked about three specific proposals. When asked about the 25 percent tax credit — employees would pay income tax on contributions, but would get a 25 percent tax credit on the total amount they put in annually — nearly two-thirds of plan sponsors oppose the idea. About half of companies still deciding whether to sponsor a plan say they would be less likely to do so under the tax credit plan, survey results show.
We can help educate them about issues just like this, especially if we do so in large numbers and in a united way. There are campaigns already created with the sole purpose to educate Congress and get the general public’s voice heard. Graff and the National Association of Plan Advisors (NAPA) launched the “Save My 401k” campaign, an initiative put in place to get large populations of people to email their respective member of Congress with the simple message: ”Stay Away from My 401(k)!”.
“The most important thing is for people to take action” against changes, Graff says, adding that in the first two weeks of the campaign, nearly 40,000 emails were sent to members of Congress. To email your local Congress member, click here.