While Congress hunts for ways to reduce the federal deficit through strict tax reform, retirement-industry groups are doing all they can to protect existing incentives for retirement savings.
The total assets in defined contribution plans were $5 trillion as of Sept. 30, 2012, according to the Investment Company Institute. Congress is eyeing this pile of money because, for the most part, contributions go in tax-free. Gains on investments aren't taxed either.
The last major change Congress made to 401(k) plans was in 1986 when it reduced the amount participants could contribute annually to $7,000 from $30,000. Industry groups say that saving for retirement is tough enough for Americans and are making aggressive strides to rally workers as well as educate members of Congress about the benefits of protecting the existing tax treatment of retirement plans.
"There certainly is a lust for revenue," says Brian Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries. "We are trying to convey that this tax expenditure is different. It's really a [tax] deferral. When money comes out of retirement plans, Congress gets its tax revenue."
Last November, Graff's organization launched Save My 401k, a multipronged campaign to protect the tax treatment of 401(k) plans. The website, featuring a piggy bank with the tagline "Protect My Piggy," teaches people about the tax advantages to retirement savings. Web visitors can send their own message to their congressional representative or a detailed form letter explaining what the society calls the dangers of toying with the existing incentives to save for retirement.
"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.
The American Benefits Council's message to keep current tax benefits is backed by statistics from a December 2012 survey, which says 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.
For the "20-20" idea—401(k) participant contributions would be limited to $20,000 or 20 percent of pay—about half of employers surveyed say this would reduce the use of defined contribution plans in workforce strategies to motivate, retain and recruit employees.
The third proposal hits higher income workers and would put a 7 percent tax on employer and employee contributions for those making more than $250,000 a year. About half of employers surveyed say they would reduce resources committed to the company retirement plan under this idea.
"Under all three approaches, there are negative consequences," says James Klein, American Benefits Council president, during a conference call with reporters "It is clear that tax incentives are quite important in company decisions when it comes to 401(k) plans."
Meanwhile, seven industry groups, including the American Society of Pension Professionals & Actuaries, have created the Coalition to Protect Retirement. They have created a website, howamericasaves.com, and are focused on a unified lobbying effort on Capitol Hill.
In December 2012, the group endorsed a resolution, introduced by Sens. Richard Blumenthal, D-Connecticut, and Johnny Isakson, R-Georgia, that backs the current tax treatment of defined contribution plans. The resolution was co-sponsored by three Republicans and six Democrats in the Senate.
"It's important to get as many members of Congress as possible on record supporting this," Graff says.
Patty Kujawa is a writer based in Milwaukee. Comment below or email firstname.lastname@example.org.