Retirement savings tax deferrals are not the same as tax exemptions and shouldn't be part of plans to cut the federal budget, the American Society of Pension Professionals & Actuaries said in a statement.
The group's warning is aimed at the Gang of Six, a bipartisan coalition of senators that proposes raising $1 trillion in revenue by reducing tax incentives, including those for retirement savings, along with cuts of up to $4.65 trillion from the budget, both over 10 years.
The subject of cutting retirement tax incentives “is coming up fairly frequently these days,” Brian H. Graff, ASPPA executive director and CEO, said in an interview. “The last time they did tax reform (in 1986), they cut the 401(k) limit by more than 75%. That's why we're really concerned.”
Details of the cuts in retirement incentives have not been announced.
As budget negotiators strive to please proponents of tax cuts, the challenge is to produce a budget that is revenue-neutral. “And if you're going to lower the rates, the money has to come from somewhere,” noted Mr. Graff in the interview.
In its statement, ASPPA said the senators overstate the tax savings that could come from reducing retirement savings incentives “because most of the deferred taxes will be paid after the short-term window used in Washington's budget scoring. Failure to recognize this bad budget math could decimate savings rates where Americans save most — at work.”