The first chapter in the Republican tax reform effort, launched in early November, brought surprises, with the prospect of many more to come in the near future.
Some of those surprises were good, such as keeping tax preferences for retirement savings in 401(k) accounts instead of a shift to Roth accounts.
Others caught many sectors off guard, including university endowments, private equity firms, public pension funds, many types of bond issuers and highly compensated employees.
The House Ways and Means Committee went first, approving its Tax Cuts and Jobs Act legislation along party lines on Nov. 9. That same day,the Senate introduced its version, which the Senate Finance Committee plans to take up Nov. 13.
The House version left untouched the tax treatment of 401(k) contributions. So did the Senate's proposal, with one unwelcome wrinkle: It does not allow people earning $500,000 or more annually to make catch-up contributions, even after-tax ones. Defined contribution advocates worry that sets a dangerous precedent for means-testing plans that could eventually lead to lower contribution caps for more people.
As both chambers struggled with wholesale changes to both individual and corporate taxes, growing sensitivity over who stands to benefit or lose from the tax law changes led to numerous revisions to the House measure that make it less likely Republicans would be able to stay within the $1.5 trillion cost limit required for passage of a final package. That, in turn, turns up the pressure to find more sources of tax revenue to offset tax breaks, which could still include reduced incentives for pre-tax retirement savings.
"We are not resting on our laurels. Right now, they felt they had enough revenue but that could be changing as we're speaking," said Ken Raskin, a partner at law firm King & Spalding in New York and board chairman of the Plan Sponsor Council of America. "We are still worried for this bill and we will be watching the Senate's bill too," Mr. Raskin said. The PSCA is part of Save Our Savings, a broad industry coalition formed for the tax reform battle.
"The 401(k) industry needs to stay vigilant. It is still a long road, and there are going to be almost daily worries," said Bob Melia, executive director of the Institutional Retirement Income Council, a non-profit retirement industry think tank of plan advisers, consultants and service providers.