ARLINGTON, VA, (June 19, 2012)— The following is a statement from Brian H. Graff, CEO and Executive Director of The American Society of Pension Professionals & Actuaries (ASPPA) in response to the 20/20 proposal by the Bipartisan Policy Center during today’s Senate Finance Committee hearing on “Confronting the Looming Fiscal Crisis.”
“While changes need to be made to confront the looming fiscal crisis, proposals to make drastic cuts to retirement tax incentives in the name of fiscal reform come at too high a cost to American workers’ retirement security.
Recommendations from the Bipartisan Policy Center’s Debt Reduction Task Force advocate slashing the 401(k) plan contribution limits to the lesser of 20% of pay or $20,000. This so-called ‘20/20’ proposal shows a real misunderstanding of how employer-sponsored retirement plans actually work. Proponents of these kind of cuts claim very few savers would be affected, but in real life many workers would see employer contributions to their 401(k) plans reduced or even eliminated.
Why? Because 401(k) plans, and the employer contributions to these plans required by nondiscrimination rules, are a critical component of retirement security, and the “20/20” proposal would seriously damage these plans. Data from the Employee Benefit Research Institute (EBRI) shows that reduced limits result in lower account balances at retirement for all income groups. Small business would be hit hardest. Younger workers in the lowest income quartile in small business plans could expect a 14% reduction in account balances at Social Security normal retirement age if this proposal became law.
Simply put, passing the 20/20 proposal and slashing the contribution limits would reduce the availability of employer-sponsored plans and contributions. The big loser would be American workers’ retirement security–and for what? Not solving the long-term deficit.
The retirement savings tax incentive is a deferral, not a permanent exclusion. Every dollar deferred today is taxed tomorrow when it is withdrawn as retirement income. With illusory revenue gains and reduced retirement security, the so-called “20/20” proposal should not be part of deficit reduction or tax reform. We can’t afford the hit in retirement savings American workers would take from this flawed policy.”
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About ASPPA: The American Society of Pension Professionals & Actuaries (ASPPA) is a national organization of more than 8,500 retirement plan and benefits professionals that serves as the educator, voice, and advocate for the employer-based retirement system. ASPPA members are administrators, actuaries, advisors, attorneys, accountants, and other financial services professionals who provide consulting and administrative services for qualified retirement plans. www.asppa.org
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