ERIC News Release
Washington, DC – In a statement submitted today to the Senate Finance Committee on its hearing on retirement savings reform, the ERISA Industry Committee (ERIC) urged the committee to be wary of unintended outcomes in considering changes to the tax rules for retirement savings.
“ERIC urges Congress to exercise significant caution when considering any changes to the tax incentives relating to the retirement system and avoid major unintended adverse consequences,” said Kathryn Ricard, ERIC Senior Vice President for Retirement Policy.
ERIC’s statement emphasizes that the current structure for employer-provided retirement plans is a key component of the successful U.S. retirement system, and that changing the current tax treatment could jeopardize the retirement security of tens of millions of workers, impact the role of retirement assets in capital markets, and create challenges for future generations of retirees in maintaining their quality of life.
“Changes to the rules for retirement plans often result in a ‘chilling effect’ on savings even by individuals who are unaffected by the rules change. Congress should take into account all the factors that contribute to a healthy and successful private sector retirement system,” Ricard advises.
ERIC recommends that Congress continue to encourage companies to voluntarily sponsor retirement plans and recognize the value that reasonable flexibility provides for retirement plans. Flexibility allows companies to design plans that work effectively and efficiently based on the needs of their workforces and the industries in which they operate, the letter emphasizes.
Ricard explains that employers voluntarily establish retirement plans for a variety of reasons, such as competing for and keeping quality workers, and ensuring workers can retire from their workplace with adequate retirement savings. She further stresses that the voluntary nature of the private sector retirement system is critical to its success, and because employers come in all shapes and sizes, a “one-size-fits-all” approach to rules and regulations often will not address the challenges of companies who want to offer retirement benefits to their workers.
Moreover, ERIC’s statement points out that it is important to distinguish a tax deferral from a tax exclusion or deduction in considering any changes to the retirement savings tax incentives. Unlike a tax exclusion or deduction, tax deferral in retirement plans increases taxes paid when the taxpayer takes a distribution from the plan. Not appreciating this distinction can lead to unintended policy decisions, Ricard warns, pointing out that proposals to limit the amount that could be contributed to a retirement plan, replace the current deferral of contributions with a credit, or limit the value of the retirement benefit would reduce retirement security for workers at all income levels, not just high-income workers.
ERIC’s statement emphasizes that the elective deferral limit works well and should be maintained, contending that workers need flexibility to be able to save more when they are able and less when under financial constraints.
The statement further advises that the current retirement system involves a delicate balance between the needs of companies and their workers, and that government agencies, including the U.S. Department of Labor, Treasury Department, and Pension Benefit Guaranty Corporation, issue detailed regulations and guidance to ensure that workers’ interests are well-protected. Retirement plan rules ensure that plans treat participants fairly and without discrimination, including vesting, coverage, and nondiscrimination rules, while encouraging employers to voluntarily sponsor the retirement plans that benefit their workers, the letter states.
“ERIC urges Congress to recognize that any changes to retirement savings incentives must focus on policy that will result in better long-term retirement outcomes for Americans, rather than on short-term deficit reduction,” Ricard concluded.
To access ERIC’s statement, click on the link below.