Excerpted from a statement submitted by Robert L. Reynolds to the House Ways and Means Committee to be part of the record of the April 17, 2012 Hearing on Tax Reform and Tax-Favored Retirement Accounts.
Surging federal deficits and a national debt that is growing faster than our economy pose a national security issue. To ensure the stability of our financial system and maintain global competitiveness, it is vital that our nation solves its debt problem.
The good news is that we have already set the foundation for one of the key elements of the solution: a robust retirement savings system.
The need for enhanced savings in our country is clear and indisputable. Americans today live longer. The cost of health care is increasing steadily. Traditional defined benefit pension plans have declined in number and scope. Meanwhile, Social Security’s projected ability to replace pre-retirement income is declining.
Working Americans have come to rely on a broad spectrum of voluntary, private retirement savings programs including individual retirement accounts (IRAs), defined contribution savings plans, and tax-advantaged variable annuities.
Regrettably though, there is a real risk that tax incentives for retirement savings plans could be undermined by ill-considered policy changes aimed at reducing the budget deficit. Proposals to cap or roll back tax deferrals for retirement savings are particularly dangerous.
There is evidence for those concerns.
- Without tax incentives, 56.7% of workers said they would save less.1
- Limiting or eliminating incentives would result in a 6%–22% reduction in 401(k) balances for workers in the 26–35 age group.2
- Without incentives, smaller business owners may be less inclined to offer workplace savings plans.3
Access to workplace savings is vital to workers’ ability to save. Very little retirement savings by low- to moderate-income workers takes place outside the workplace system. We believe that Congress should also support solid, bipartisan ideas such as the Auto-IRA, which could extend access to workplace savings coverage for millions of workers.
We urge all members of Congress to oppose any policy change that would undermine incentives for retirement savings.
1 EBRI, “The Impact of Modifying the Exclusion of Employee Contributions for Retirement Savings Plans From Taxable Income: Results from the 2011 Retirement Confidence Survey,” March 2011, p.5.
2 EBRI, “Modifying the Federal Tax Treatment of 401(k) Plan Contributions: Projected Impact on Participant Account Balances,” 2012.