The broad strokes of the Republican tax reform framework unveiled Sept. 27 aims to protect retirement tax incentives — but industry experts say it would be a mistake to assume the risk has passed.
That nine-page framework calls for lower individual and corporate tax rates and the elimination of many deductions, but would maintain tax incentives for retirement savings and deductions for home mortgage interest and charitable contributions.
While those are positive indications, said Lynn Dudley, senior vice president for global retirement and compensation policy at the American Benefits Council in Washington, "the council remains concerned that lawmakers will seek to alter the tax incentives for employee benefit plans later in the process, as the need for federal revenue offsets becomes more acute."
Asked how retirement savings will be affected, House Ways and Means Committee Chairman Kevin Brady, R-Texas, told the U.S. Chamber of Commerce that Republican leaders are very aware "that we are not a nation of savers; we need to be." To that end, he said, "we are protecting current incentives for tax deductibility, tax free savings in (plans)."
As House and Senate tax-writing committees fill in the details over the coming months, advocates for retirement plan sponsors and service providers are on alert that legislators could mandate a whole or partial shift to Roth post-tax retirement savings accounts in order to offset revenue losses from the proposed tax cuts.
That threat was real enough to prompt 16 Democratic House members to write the House Ways and Means and Senate Finance committees, warning that any projected revenue from a change to Roth "is largely illusory" because it only looks at a 10-year budget window instead of considering taxes paid in later years.
That idea of "Rothification" is shortsighted, said Ms. Dudley, and "a dangerous experiment that could have seriously negative effects on individuals' savings behavior."