Pension professionals are up in arms over the Federal Tax Reform Panel’s retirement savings proposals, which were included in the recommendations the panel put forth November 1 on ways to overhaul the tax code, saying they would be “devastating” to Americans’ retirement security.
The panel’s proposed Save at Work Account is troubling because it would eliminate all employer-sponsored defined contribution plans like 401(k)s, 403(b)s, 457 plans, and SIMPLE plans, and replace them with one account. The proposal would also eliminate the tax deductions for contributions; instead contributions to the account would be made on an after-tax basis, but distributions would be tax-free. “Without the upfront tax deduction, we believe many workers currently saving in their 401(k) will choose not to save,” says Brian Graff, executive director of the American Society of Pension Professionals & Actuaries (ASPPA), in a prepared statement. The panel was able to finance lower tax rates on higher income taxpayers by doing away with the pre-tax deduction for retirement plan contributions, Graff says. “It is totally unacceptable to lower tax rates for higher income individuals by sacrificing the savings tax incentives for American workers,” he says.