Magazine

Published in June 2012

Ways and Means

By Tara Cantore | June 2012
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Expert testimony touts tax-favored retirement accounts

The House Committee on Ways and Means heard testimony last month on tax-favored retirement accounts, with several organizations coming to their defense.

“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 said.

“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.