Proposals by Washington deficit hawks to cap or eliminate tax incentives that encourage Americans to save for retirement are “short-sighted”and could contribute to sending millions of workers into retirement with little or no savings, said Putnam Investments president and CEO Robert Reynolds.
Speaking before the Greater Boston Chamber of Commerce Executive Forum on Tuesday, Reynolds called on the congressional delegation in Massachusetts, the birthplace of the mutual fund industry, to oppose any policy shift that could undercut incentives for workers to save or employers to offer workplace savings plans.
“We absolutely need to take steps to balance the federal budget and put the nation on the path to fiscal solvency, but nothing we do to achieve national solvency should come at the expense of personal solvency, especially private retirement savings or incentives for companies to offer 401(k) plans to their workers,” Reynolds said. “Those most severely hurt if savings incentives were cut would below and moderate income workers who need help in saving for their futures. I urge the Massachusetts congressional delegation to take the lead in defending policies that enable millions of working Americans to save for a secure and dignified retirement.”
Reynolds noted that workers earning less than $100,000 annually received 62% of all retirement-related tax expenditures while paying just 26% of federal income taxes, which he said was contrary to any notion that tax deferrals benefit only the well-to-do. By contrast, he said workers earning more than $200,000 annually received just 11% of all retirement-related tax expenditures despite paying 52% of all federal income taxes.
Reynolds pointed out that a reduction in retirement savings incentives during the last major tax overhaul in 1986 caused a significant drop in retirement savings. He warned that reduction in savings incentives now being considered in Washington could have an even more severe impact, since few younger workers today have access to traditional defined benefit savings plans.
In addition to protecting existing incentives to save, Reynolds has called for extending savings opportunities to millions of working Americans who currently lack access to a workplace savings plan. Reynolds endorsed the auto-IRA payrolldeduction proposal – originally put forward by the Heritage Foundation and the Brookings Institution – as a reasonable, cost-effective way for millions of lower-income workers to save through an IRA at their job.
“Expanding access to retirement savings programs through ideas such as the auto-IRA proposal would give millions more workers a stake in our free enterprise system and the opportunity to build a real nest egg for their future,” Reynolds said. “Every dollar that retirement savers set aside today likely means that much less they will need in government assistance in the future. National solvency and personal solvency complement each other. We should never pit one against the other. We need policies that foster both. I hope that our Congressional delegation will take the lead on this in Washington.”