Retirement-savings advocates to mobilize forces if tax-reform plan cuts benefits

If 401(k) pre-tax contributions are curtailed, several groups plan to launch nationwide campaigns against the effort

Oct 31, 2017 @ 2:38 pm

By Mark Schoeff Jr.

On the eve of the release of the House Republican tax-reform proposal, retirement-savings advocates are hoping for the best but preparing to swing into action if the plan is too stringent on curtailing pre-tax contributions to retirement plans.

For weeks, rumors have been circulating that the House bill will include a $2,400 cap on pre-tax deferrals, a big drop from the current $18,000 for workers under age 50, and a level that has caused a strong negative reaction from the financial industry. But the proposal may not be that draconian, according to Robert Reynolds, chief executive of Putnam Investments.

"I'm encouraged by discussions I've had with Washington ... that it will end up in a good place," Mr. Reynolds said. "It has to be at a level that encourages participation and encourages people to contribute as much as they can."

Putting a ceiling on pre-tax payments into retirement plans would enable the government to collect more revenue up-front, which could fund other tax cuts. Shifting some retirement savings into after-tax accounts with tax-free withdrawals, so-called "Rothification," would change the traditional 401(k) arrangement that allows people to take the tax break today.

Not everyone is as confident as Mr. Reynolds that the change to retirement-savings allowances will be minimal.

"Our expectation is that whatever they're doing will not make up for the Rothification piece," said Brian Graff, chief executive of the American Retirement Association. "Those changes need to be retirement-policy focused and not solely for the purpose of generating tax revenues for other purposes. That's what we're concerned about happening here."

If the House proposal turns out as Mr. Graff anticipates, the ARA, which is comprised of several retirement-savings advocacy groups, will launch an online effort Thursday to encourage its members to call and email members of Congress.

The Save Our Savings Coalition established a similar online campaign to generate emails to lawmakers. They are being sent at the rate of about one per minute, said Michael Kreps, principal at Groom Law Group and an adviser to the coalition.

"We think there's a lot of grass-roots energy here," Mr. Kreps said.

A spokeswoman for the House Ways and Means Committee was not immediately available for comment.

Capitol Hill Democrats will likely be allies of the retirement-savings advocates.

"We vigorously oppose any tax hike on middle-class retirement accounts," Senate Minority Leader Chuck Schumer, D-N.Y., said in a Tuesday press conference on Capitol Hill. He criticized Republicans for cutting retirement savings "to give a huge tax cut for the top 1%."

Senate Democrats released a plan Tuesday that would raise 401(k) contribution limits to $24,500 and $30,500 for workers under and over 50, respectively. Their plan also would provide incentives for employer matches and an auto-individual retirement account program for employees of companies that don't sponsor a retirement plan.

House Ways and Means Chairman Kevin Brady, R-Texas, promised a "pro-growth" tax plan that will include "strong incentives for Americans to save earlier in their lives" at the Securities Industry and Financial Markets Association annual conference last week in Washington.

The budget agreement approved last week allows the GOP to pass tax reform with only Republican votes. That doesn't ensure a victory, however, as interest groups fight to protect an array of tax breaks, including those for retirement savings. Some experts, such as Nobel Prize-winning economist Richard Thaler, say 401(k) contributions limits can be lowered without hurting low-income workers.

That's the opposite of what Fidelity Investments is telling lawmakers about a $2,400 limit on pre-tax contributions.

"We believe that, barring other policy changes, such a low cap will make it harder for American workers, particularly those with lower and middle incomes, to save for retirement," Dave Gray, Fidelity senior vice president, said in a statement.

The Insured Retirement Institute has been distributing studies showing that workers prefer traditional 401(k) plans to Roths.

"It's clear that Americans are choosing pre-tax deferrals," said Lee Covington, IRI senior vice president for government affairs and general counsel. "People are listening. Members of Congress have concerns, and those concerns are growing with the release of this information. We think the [tax-reform] process will yield the right results."

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