April 17, 2012
For additional information:
Jason Hammersla
202-422-4652 (cell)

The first rule of retirement tax policy: do no harm

Incentives for employee savings should be maintained for benefit of individuals, economy

WASHINGTON, DC — “Employer-sponsored retirement savings plans are an indispensable building block of our nation’s retirement system,” said Randolf H. Hardock, managing partner at Davis & Harman LLP, testifying on behalf of the American Benefits Council in today’s U.S. House of Representatives Ways and Means Committee hearing on tax reform and tax-favored retirement accounts.

“Retirement plans, like those sponsored and administered by the Council’s members, successfully assist tens of millions of families in accumulating retirement savings and will provide trillions of dollars in retirement income and a more financially secure retirement,” Hardock said.

The Council’s testimony describes the many successes of the current system and the critical tax incentives that make employer-sponsored plans so effective — both as a source of personal financial security as well as a driver of economic growth. “Individuals have heightened retirement income concerns resulting from the recent economic downturn. But 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,” Hardock said.

“Some have suggested fundamental changes to the tax treatment of 401(k)s and other defined contribution plans, but such proposals are deeply flawed and could be fraught with unintended consequences,” Hardock said. “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 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.”

The Council offered a number of suggestions for improving retirement savings — especially for those with lower incomes, who find it the most difficult to save — by building on the current system, such as:

  • promoting automatic enrollment and automatic escalation strategies;
  • providing tools and strategies to help individuals avoid outliving their retirement income;
  • facilitating a flexible and evolving approach to retirement that accommodates those individuals who need or choose to continue paid work into the traditional retirement years;
  • tax simplification and reduction in the administrative burden on plan sponsors; and
  • ensuring that traditional defined benefit plans remain a workable option for employers.

“Since the employment-based retirement system is the most effective and significant source of retirement saving, any changes in that area should be approached with extreme caution. The wisest course in most instances will be to ‘do no harm’ and avoid new laws or regulations that would disrupt the successes of the current system,” Hardock concluded.

The Council’s testimony is available here. For more information, or to arrange an interview with Council staff on retirement policy, please contact Jason Hammersla, Council director, communications, at 202-289-6700.

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.