The House Committee on Ways and Means heard testimony last
month on tax-favored retirement accounts, with several organizations coming to
“Retirement plans, like those sponsored and administered by
the council’s members, successfully assist tens of millions of families in
accumulating retirement savings and will provide trillions of dollars in
retirement income and a more financially secure retirement,” said Randolf H. Hardock,
managing partner at Davis & Harman LLP, who testified at the hearing on
behalf of the American Benefits Council.
Jack VanDerhei, research director of the Employee Benefit
Research Institute (EBRI), spoke to the committee about the concept of measuring
retirement security. He cited EBRI research that found 43.3% to 44.3% of Baby
Boomers and Generation Xers are projected to have inadequate retirement income
this year to cover basic retirement expenses and uninsured health care costs—5%
to 8% fewer than the institute’s analysis revealed in 2003. VanDerhei
attributed the improvement to the increase in employers using automatic
enrollment for their 401(k) plans.
David C. John, senior research fellow retirement security
and financial institutions at The Heritage Foundation and deputy director of
the Retirement Security Project (RSP), suggested how Americans can improve
their retirement savings. “Employer-sponsored retirement plans, including
401(k)-type retirement savings accounts, are the best way for individuals to
build retirement security.”
Automatic enrollment and automatic escalation are effective
ways to boost plan participation, by making it easier to save, both John and
Hardock said. John noted the need to extend the benefits of automatic saving to
a wider population by combining payroll deposit saving, automatic enrollment,
low-cost, diversified default investments and IRAs.
Hardock told the committee that retirement savings tax
expenditures should not be tinkered with or reduced to pay for other
initiatives, either inside or outside a tax reform process.
“Significantly, the bulk of the existing ‘tax expenditure’
for retirement plans is attributable to the deferral of tax provided to already
saved retirement assets, not to future annual permitted contributions,” Hardock
“Existing savings should not be taxed in order to finance
more government spending, deficit reduction or to offset other tax initiatives,
including lower marginal tax rates,” he added.