Retirement planning experts and members of the House Ways and Means Committee agreed Tuesday that fundamentally changing the current retirement planning system in efforts to reform the tax code could result in unintended consequences.
“As the Committee continues its work toward comprehensive tax reform, it is important to keep in mind that these savings vehicles affect average people who depend on these resources for their retirement,” Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, said in his opening remarks. “We must ensure that we do not inadvertently take steps that result in unintended consequences that could threaten the retirement security of ordinary families.”
Camp said that as the committee continues to explore tax reform, three important principles must be kept in mind when evaluating tax-favored retirement vehicles: (1) simplification; (2) increased participation, particularly by low- and middle-income taxpayers; and (3) whether the tax benefits are effective and properly targeted.
Indeed, Randolf Hardock, managing partner at Davis & Harman LLP, who was testifying on behalf of the American Benefits Council, told lawmakers that while individuals have heightened retirement income concerns resulting from the recent economic downturn, “those concerns only serve to reemphasize the vital role workplace-based retirement plans play in ensuring personal financial security and in generating savings to fuel the type of capital investment the economy needs to generate long-term growth.”
Some have suggested fundamental changes to the tax treatment of 401(k)s and other defined contribution plans, Hardock said, “but such proposals are deeply flawed and could be fraught with unintended consequences. Proposals that purport to increase short-term federal tax receipts by redirecting, eliminating, or eroding the existing retirement savings incentives would realize those additional revenues largely because individuals would be saving less for retirement.”
Any major restructuring of the current system, Hardock continued, “that reduces or tries to reallocate existing retirement tax incentives is a gamble we cannot afford to take when dealing with the retirement security of working and retired Americans.”