Corporate pension industry lobbyists are bracing for an attack on the tax breaks for pension plans as the White House and federal lawmakers struggle to slash the federal budget deficit.
The opening salvo on the retirement plan tax deferrals is expected to come from the White House's National Commission on Fiscal Responsibility and Reform, lobbyists for corporate pension plans said. The bipartisan commission is supposed to issue a report by Dec. 1 on ways to bring the federal budget under control.
Lobbyists are concerned that the tax breaks for contributions to defined benefit and defined contribution plans could wind up on the chopping block because together they are expected to account for $111.7 billion in tax revenue losses to the U.S. Treasury during fiscal 2011, according to President Barack Obama's proposed budget. The revenue loss from the tax deferrals on contributions to 401(k) and other defined contribution plans is expected to amount to $67.1 billion during the fiscal year, which started Oct. 1, while forgone revenue from defined benefit plans is expected to amount to $44.6 billion during the same year, according to the budget.
Projected tax losses associated with retirement plans are second only to the $177 billion attributable to exclusions for medical care, according to Mr. Obama's budget.
Adding to the concerns of pension industry lobbyists is that many Republicans — who took control of the House and dramatically improved their Senate minority margin in the Nov. 2 election — ran on a platform that included bringing the federal budget to heel.
“The great danger to pensions is going to be deficit reduction,” said Mark Ugoretz, president of the ERISA Industry Committee, Washington, in an interview. “Lawmakers are going to be looking at the extent to which they can curtail the contribution limits. Everything is on the table.”
Added James Klein, president of the American Benefits Council: “As Congress looks to address the deficit, the fact that pensions represent the second-largest tax expenditure in the budget makes them vulnerable.”
The annual cap for participants on tax-deferred contributions to 401(k), 403(b) and 457 plans is currently $16,500, with those 50 or older able to contribute an additional $5,500.
The existing maximum benefit from a defined benefit plan is $195,000 a year. Reducing the benefit would decrease the amount of tax-preferred contributions an employer can make to the plan.