Industry Leaders Discuss Tax Treatment of Benefits

The comments from industry professionals about tax treatment of benefits and suggestions for improving benefit plan outcomes included: 

• Retirement benefits are a tax deferral rather than an exclusion from income—meaning the federal government will eventually recoup the forgone revenue. This distinguishes retirement plan deferrals from other tax exclusions.  
• A big difference between tax-expenditure estimates and revenue estimates for scoring tax reform is that the latter incorporates taxpayer behavior whereas tax expenditure estimates do not.   
• Ten percent or fewer of those ages 55 to 60 are making withdrawals from their IRA, compared with 80% of those 71 and older.  
• On a historical basis, depending on the period measured, pre-retiree balances in defined contribution retirement plans double about every eight to nine years.  
• Employer match levels seemed to have a bigger impact on older workers, but automatic enrollment seems much more significant in terms of getting younger employees to participate in retirement plans. 
• Common challenges for underfunded retirement systems worldwide include the need to increase the state pension age and/or “normal” retirement age for full benefits; to promote higher labor-force participation at older ages; to encourage or require higher levels of private saving; to increase retirement coverage of employees and/or the self-employed; and to reduce savings “leakage” prior to retirement.  

PLANSPONSOR staff
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