Retirement policy direction in the US has hit some turbulence with the new Republican administration and a majority in both Houses of Congress. Recently, policy analysts and industry professionals gathered at the Employee Benefits Research Institute (EBRI) Forum to discuss possible directions in government policy and their likely implications for the retirement industry.
With a new Congress and a new president in Washington, how are U.S. retirement policies likely to change? Possibly quite radically, and for two main reasons. First, because of the new majority’s plans to overhaul the entire U.S. tax structure and federal budget in ways that could fundamentally change how private-sector retirement plans are treated in the tax code. Retirement, as a standalone issue, is no longer a high legislative priority in Washington. And second, because of the drive to simplify and lower income tax rates, tax-favored retirement provisions in the tax code are vulnerable. As one of the top sources of “revenue foregone” by the federal government, ending or reducing current tax breaks for employment-based retirement plans (particularly 401(k)s) would free up revenue for other things the new Congress and president want to do.
Retirement Policy Directions in 2017 and Beyond By Stephen Blakely, Employee Benefit Research Institute
Just a few of the comments provided by attendees at the forum:
Speaking at the Employee Benefit Research Institute’s December 2016 policy forum, Brian Graff, CEO of the American Retirement Association, said retirement savings incentives in the current tax code are an inevitable target to help finance Republicans’ other priorities. “They want to do tax reform that’s revenue neutral, they want to lower rates, they want to lower taxes on investments, and they want to lower corporate rates,” Graff said. “To be revenue neutral, the money that has to come from someplace else, and historically, we [retirement tax preferences] have been a target to pay for other priorities.” Graff added that policymakers in Washington today are not focused on retirement savings in the same way as those in the retirement sector. Specifically, he cited recent comments by Rep. Kevin Brady (R-TX), chairman of the tax-writing House Ways and Means Committee, calling for a radical simplification of the federal tax code. “He mentioned the importance of savings and that Americans aren’t saving enough—but the conversation wasn’t about retirement savings, it wasn’t about saving for health care, it wasn’t about saving for education. It was about reducing the taxes on capital gains,” Graff said. “They’re not talking about retirement—they’re talking about the way to increase savings is by reducing the taxes on investments.” Since more than 80 percent of capital gains tax incentives go to households with over $250,000 in adjusted gross income, he added, “I don’t think there’s much of a debate about who gets the incentives for reductions in capital gains, and that’s the problem: We’re not even viewed as savings in that prism.”
Josh Gotbaum of the Brookings Institution Retirement Security Project and former director of the Pension Benefit Guaranty Corp., suggested that having a decentralized national retirement policy will eventually bring pressure on Congress to address the issue, in particular the current trend to create state-backed retirement plans for the private sector. “If enough states try it in enough different ways, the financial services industry will go to Congress and say, ‘We don’t want 50 different rules, we’re willing to live with a national requirement.’ I am hopeful that that will happen…it would be the largest advance in retirement coverage, frankly, since Social Security,” Gotbaum said. However, he added, this carries the downside of removing employers from retirement plan sponsorship, which would eliminate consumer protections, education and administrative advantages of the current employer-based retirement system. “With employers out of that picture, there’s a question of how do you do consumer protection…[since most] people are demonstrably not competent to protect themselves,” Gotbaum said.
Read the full report from many other panelists from the EBRI Forum here
Also, A webcast of this policy forum is online at Here