What You Need to Know
- The freeze would take effect in 2031.
- It is intended to reduce a tax deferment that favors the highest earners, Democrats say.
- Retirement plan lobbyists are working to get the provision stripped from the Senate version of the bill.
[Editor's note: The day after this story was published, the American Retirement Association said it successfully lobbied to have a provision in the stimulus bill to freeze retirement plan contribution limits removed. According to the ARA, Senate Majority Leader Chuck Schumer, D-N.Y., offered a substitute amendment.]
The $1.9 trillion economic stimulus package, which passed the House on Feb. 27, freezes retirement plan contribution limits starting in 2031.
The bill, H.R. 1319, the American Rescue Plan Act of 2021, would freeze the annual cost-of-living adjustments for overall contributions to defined contribution plans and for the maximum annual benefit under a defined benefit plan.
The measure would be effective for calendar years beginning after Dec. 31, 2030, “[i]n what can only be called a budget gimmick,” said Brian Graff, president and CEO of the American Retirement Association, a lobbying group, in a recent LinkedIn post.
Added Graff: “Fortunately, we have an opportunity to fix this in the Senate and we are working hard to try and get this misguided provision eliminated.”
Senate Majority Leader Chuck Schumer, D-N.Y., said Wednesday afternoon that the Senate would move “as early as tonight” to take up the American Rescue Plan.
Brad Campbell, partner at Faegre Drinker in Washington, said Wednesday in an email to ThinkAdvisor that “freezing the limits is bad policy in that it prevents many Americans, including many small business owners, from being able to save enough for retirement as inflation erodes the value of savings. It is an unfortunate reality of the Congressional process for tax legislation that so-called ‘revenue raisers’ often target the retirement system.”