A proposal to cut by more than half the total amount employers and employees may contribute to their defined contribution plans could spur some employers to kill the plans, industry lobbyists say.
The proposal by the Bipartisan Policy Center — an influential Washington think tank headed by high-profile former federal policymakers — is supported by the Economic Policy Institute, a think tank that focuses on worker issues. It was unveiled Nov. 17.
“This would undermine the willingness of employers to offer plans,” said Ed Ferrigno, vice president of Washington affairs for the Profit Sharing/401(k) Council of America, Chicago.
Added Mark Ugoretz, president of the ERISA Industry Committee, Washington: “It cuts any interest that managers (highly compensated employees) would have in maintaining plans, and it would drive many more management employees into non-qualified deferred compensation plans.
“I would hate to see that happen,” added Sheryl Wright, director of human resources for Teledyne Isco Inc., Lincoln, Neb., whose 401(k) plan that had assets of $410 million as Dec. 31. “More people need to save more for retirement because Social Security may not eventually be at the levels we have today.”
Under the proposal — included in the center's “Restoring America's Future” report — the total combined tax-deferred contributions that employees and employers could make would be limited to 20% of an employee's annual earnings, or $20,000, whichever is smaller.
The current combined employer/employee cap is $49,000 a year.
The Bipartisan Policy Center is proposing to lower the contribution caps as part of a larger plan to enhance federal tax revenue and reduce tax expenditures.
“The task force plan will let most individuals retain the ability to contribute enough to qualified retirement plans to accumulate enough tax-free assets to purchase an annuity that replaces a substantial share of their earnings in retirement,” the report says. “However, qualified plans will no longer be a vehicle for wealthy individuals to convert a substantial share of their assets into tax-free retirement assets.
“In addition, to spur saving by rank-and-file workers, the plan will introduce an expanded and refundable savings credit for taxpayers in the 14% bracket.”