The Financial Services Institute is calling on the leaders of a Senate committee to pass a resolution expressing the "sense of the Congress" that the current tax system includes valuable incentives that encourage Americans to save for retirement and should be preserved.
If enacted, Senate Concurrent Resolution 62, authored by Richard Blumenthal (D-Conn.), would not amount to a new law or policy, but could provide a political buffer against proposals to modify the tax status of retirement products at a time when lawmakers are combing through the tax code in search of exemptions and deductions that could be capped or eliminated in an effort to boost revenue as the so-called fiscal cliff approaches.
"The incentives in the current tax structure play a key role in the decisions made by individuals and businesses on how much they save. If the benefits in the tax code were to be removed, many people may not have the proper incentives to save sufficiently for their retirement," FSI President and CEO Dale Brown wrote in a letter to Finance Committee Chairman Max Baucus (D-Mont.) and Orrin Hatch of Utah, the ranking Republican on the panel.
"In addition, if changes are made, employers may choose not to sponsor retirement plans. The consequences of these changes could result in Americans not accumulating sufficient financial resources to sustain themselves during retirement," Brown said.
FSI's entry into the debate comes amid ongoing negotiations between the White House and the Republican leadership in the House to develop a package of revenue increases and spending cuts that both sides can support. Absent such a deal by the end of the year, a set of tax increases and deep, across-the-board spending cuts will take effect that experts have warned could jolt the economy back into recession.
FSI advocates on behalf of policies that generally encourage greater employer and employee participation retirement plans, and warns that curbing tax incentives or capping maximum contribution limits could jeopardize the retirement security of millions of Americans, compelling "the government to intervene to help under-prepared retirees during their retirement years."
Brown also pointed out that the taxes on retirement plans are deferred -- not avoided -- and are paid upon distribution of the funds.
Retirement plans took a hit the last time Congress enacted a major reform of the tax code, as the 1986 Tax Reform Act dramatically limited the deductibility of contributions.
The FSI is not alone in championing the preservation of the current tax system for retirement plans. Late last month, the American Society of Pension Professionals and Actuaries (ASPPA) launched a social-media campaign headlined "Save my 401k," urging employers, retirement plan professionals and others to contact Congress to oppose new limitations on the current tax incentives.
"The single most important factor in determining if a worker is saving for retirement is whether or not there is a plan at work," ASPPA CEO and Executive Director Brian Graff said in a statement. "We understand Congress needs to reduce the debt and raise revenue but raiding the tax incentives for 401(k) plans will put American workers' retirement security at risk."
A companion to the Senate resolution opposing changes to retirement plan tax incentives is pending in the House.
