ACOPA News from the Field
2011 Advanced Actuarial Conference
SAN FRANCISCO, CA., (June 6, 2011) – The ASPPA College of Pension Actuaries (ACOPA) held its Advanced Actuarial Conference in San Francisco June 6 – 7. This conference is designed for practicing actuaries and those with related positions. Actuarial, legal and accounting experts lead a wide variety of sessions that were structured to allow for interaction with the speakers, as well as peers.
Judy Miller, Chief of Actuarial Issues and Director of Retirement Policy for ASPPA, provided an update on related activities in Washington. This is especially relevant to those of us in the retirement industry, because Congress’ highest priority right now is deficit reduction. In this period of prolonged economic difficulty, solutions are being sought anywhere and everywhere. The private retirement system is at risk due to its perceived contribution to the deficit.
Based on estimates prepared by the Joint Committee on Taxation, employer-provided retirement plans rank as one of the highest tax expenditures in the federal budget. This has placed a target squarely on the back of these plans.
Miller explained that, unlike most other expense items, the tax deductions for these plans are not “tax expenditures”, but rather deferrals of taxation. Since the accumulated retirement savings become taxable upon distribution, the net impact on tax revenues is substantially less. The true cost is more accurately reflected by offsetting the current tax reductions by the present value of the future tax revenues.
There is a perception that new defined benefit plans are being established primarily by doctors, lawyers and other professionals. This perception is refuted by a GAO report on coverage (GAO-11-333). According to the report, 57% of the new defined benefit plans established for companies with less than 100 employees during 2003 – 2007 are sponsored by small businesses that are NOT doctors, dentists, lawyers or “noncategorized professional services”. Regardless, the perception remains. Contradictory data notwithstanding, the report concluded: “Additionally, comments from officials at the Department of Labor and PBGC, as well as from other experts, suggest that most new DB plans were started by highly paid, middle-aged professionals who run small businesses and were looking for ways to put as much tax-deferred income aside for retirement as possible.”
The 2010 Deficit Reduction Commission provided methods of reducing the deficit. Among these were the “zero” option – eliminating all “tax expenditures”, including retirement savings incentives – as well as a more moderate alternative that would include reductions to the limits on defined contribution plans. Additionally, the commission suggested that the Pension Benefit Guaranty Corporation (PBGC) be given authority to raise premiums. Obama’s 2012 budget proposal included this PBGC authority, estimating the increase in revenue to be $16 billion over the next ten years.
Washington is under extraordinary pressure to reduce the deficit and has its eyes on the private retirement system. Let us hope that they do not simply look at the current tax expenditures, but consider the future tax revenues and the social good these plans provide.
—Stephen R. Parks, MSPA, COPA
The Senex Group
Category: Washington Update