Reps. Jim Gerlach, R-Pa., and Richard Neal, D-Mass., both members of the House Committee on Ways and Means, introduced a joint resolution on Thursday that would make it the “Sense of Congress” that current tax incentives for retirement savings should be retained in any reform of the tax code.
On the same day, Neal (left) also introduced two other bills—an auto IRA bill, The Automatic IRA Act of 2012, H.R. 4049, and a bill to simplify and enhance qualified retirement plans called the “Retirement Plan Simplification and Enhancement Act of 2012,” H.R. 4050—that his spokesperson told AdvisorOne was a “pretty comprehensive retirement plan bill.”
Both Neal and Gerlach commented on the joint resolution at an event on Capitol Hill held by the Aspen Institute called “Fiscal Reform and the Future of Lifelong Savings.”
At the event, Gerlach (right) said that the joint resolution—which currently has 100 co-sponsors—“underscores the importance” of the retirement security aspect of the tax code.
Neal commented that the “stunning” statistic that half of Americans go to work each day and aren’t covered by a retirement plan at work is just another sign that “we need to use the tax code to boost retirement savings and personal savings as well.”
The bipartisan resolution provides that it is the “Sense of the Congress” that:
- tax incentives for retirement savings play an important role in encouraging employers to sponsor and maintain retirement plans and encouraging participants to contribute to such plans;
- existing tax incentives have increased the number of Americans who are covered by a retirement plan; and
- a reformed and simplified Tax Code should include properly structured tax incentives to maintain and contribute to such plans and to strengthen retirement security for all Americans.
Neal’s auto IRA bill would amend the Internal Revenue Code to expand personal and retirement savings coverage by enabling employees not covered by qualifying retirement plans to save for retirement through automatic IRAs.
Bob Reynolds (left), CEO of Putnam Investments, who was also at the event, said that Neal and Gerlach’s resolution reflects on the belief that he shares, which is “that incentives for retirement savings, particularly in the workplace have delivered a great American success story.” However, he said, “the success of these plans isn’t universally accepted yet. That’s why we support bipartisan ideas like the auto IRA legislation introduced today” by Neal.
Neal added that his “auto IRA legislation stands up against scrutiny from both sides of the aisle.”
Brian Graff, executive director and CEO of the American Society of Pension Professionals and Actuaries (ASPPA), who was also at the meeting, said that Neal’s bill would boost savings. “If all workers had access to a plan at work we would see staggering increases” in savings, he said.
Graff said at the event that the current tax incentives encourage employers to adopt a retirement plan such as a 401(k) plan and encourage employees to save in these plans. “Congress saw fit to provide certainty about the availability of these tax incentives when it overwhelmingly passed the Pension Protection Act in 2006 with bipartisan support. These incentives have been extremely effective at providing retirement savings to tens of millions of American workers.”
The first step, Graff continued, “in securing future retirement security is to do no harm to what has been working very well. Some proposals that have been raised in the context of deficit reduction or tax reform would seriously hurt coverage and reduce the level of retirement savings across income groups. Small businesses would be hurt the worst. Proposals currently under discussion –whether slashing the contribution limits, reducing tax incentives, or turning the current year’s exclusion into a credit – would discourage small business owners from setting up or maintaining a workplace retirement plan. That’s the exact opposite of what needs to be done.”
Reynolds added that “under cutting savings incentives is the wrong way for Congress to go.” He cited research performed by Putnam which found that Social Security is a vital source of retirement income, especially for lower income workers but still highly valuable for higher income folks. He also said that Putnam research has found that “workers who have access to workplace savings plans and participate in the plan and defer 10% or more of income are on track to replace 100% of income once you add in Social Security.”