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  2. DEFINED CONTRIBUTION
December 11, 2012 12:00 AM

Survey: Changes in tax rules could cut 401(k) plan sponsorship

Hazel Bradford
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    Employers will be less willing to provide 401(k) retirement plans if Congress reduces their current tax treatment, according to a survey of 516 companies by the American Benefits Institute, the educational research arm of the American Benefits Council.

    The survey, conducted by Mathew Greenwald & Associates and released Tuesday, asked employers about specific tax proposals that could come up during fiscal cliff negotiations, including a “20-20” proposal to limit contributions to $20,000 or 20% of compensation; a refundable tax credit instead of the current tax exclusion; and a proposal to limit the tax exclusion for workers in the 35% tax bracket to 28%.

    Almost half of employers, 46%, said they would consider dropping their plans under the 28% tax credit scenario, while one-third would do so in the event of a limited tax exclusion or under the 20-20 proposal.

    Employers with 1,000 or more workers were more likely to consider cutting benefits or dropping plans altogether, the survey found.

    The survey also showed 91% of employers believe the current tax exclusion for 401(k) plan contributions is important to their workers' decision to contribute to the plan and 72% say that workers contribute more because of it.

    Among the respondents, 84% of employers found workplace-based 401(k) plans valuable. “Employers believe that they provide real value in attracting and retaining employees,” said Mathew Greenwald, president and CEO at the eponymous firm, on a conference call.

    “As part of a deal to avoid the fiscal cliff, or in the context of broader deficit reduction next year, the current tax-deferred treatment 401(k) contributions could be changed to generate short-term federal revenue,” said James A. Klein, ABC president, during the call. “This survey demonstrates that it would be shortsighted and ill-advised for Congress and the president to do so.”

    “Not all tax expenditures are created equal,” Mr. Klein said.

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