Is our retirement plan system under attack? For weeks, as the country waited to see what tax reform would mean for this president and Congress, multitudes of articles appeared on
news sites across the country, including ours, referencing what
experts hypothesized might be at stake. Many of these articles discussed potential changes to the employer-sponsored defined contribution (DC) retirement plan system—specifically 401(k) plans.
Ideas such as elimination of the 401(k) tax deferral, mandatory
Roth contributions and change to limits were all mentioned.
However, when President Donald Trump’s tax proposal was
released, the 401(k) system seemed safe. “We
are going to eliminate most of the tax breaks
that mainly benefit high-income individuals.
Home ownership, charitable giving and retirement savings will be protected—but other tax
benefits will be eliminated,” said Gary Cohn,
chief economic adviser to President Trump
and director of the National Economic Council,
in a statement. However, the vagueness of
the phrase “retirement savings” led some to
believe 401(k) plans might still be at risk.
Then, for about 10 to 15 minutes that
week, my team was preparing to get commentary discussing what would happen if the
president’s tax plan eliminated the 401(k) tax
deferment/deduction when Press Secretary Sean Spicer, during
his daily press briefing, seemed to say the administration’s tax
proposal might do just that. However, a few minutes later, the
White House clarified that, in fact, this was not the case.
Of course, from my standpoint as the editor of a magazine
that focuses on employer-sponsored retirement plans, it would
be counterproductive to think that such a suggestion would be
anything but harmful. As one of my team members said, “I don’t
mean to get all political here, but how could gutting the 401(k) tax
deferment system be viewed as a good idea?” I have to agree. Yes,
I know that our industry is seen as a colossal expense because of
the way the Congressional Budget Office (CBO) scores revenue.
Tax-deferred retirement plans are seen as an expenditure to the
government because much of the revenue associated with them
will not be recovered within the 10-year window the CBO uses
for budgeting—which has always struck me as short-sighted.
The trillions of dollars in the retirement plan system could be
viewed as an annuity for the government if the CBO changed its
strategy—and, as we know, income for life is an excellent benefit.
The idea that the retirement plan system might be under
attack is nothing new—early in my career, under President
George W. Bush, I spent years learning about, and writing
articles about, his proposals for revamping the retirement and
savings account system. However, there has been a sense that
perhaps this time, changes are more probable.
I turned to Twitter right after Press Secretary Spicer made
his unsettling remarks and was amazed to see that the responses
of many aligned with my own—most were from people upset
at the inference that their savings opportunities might be taken
away. It was refreshing to see such responses—see the value
people recognize in their retirement plans. Suddenly, when
there may be changes to the fundamentals
behind our retirement plans, you see articles
with titles “Grab Your Pitchforks, Your 401(k)
May Need Defending From Congress” in the
Wall Street Journal. I just wish that sentiment
was always the case.
The editorial team at PLANSPONSOR
receives multiple news alerts each day tracking
various topics, online. For obvious reasons
“401(k)” is one of the keyword search terms.
That alert comes once, if not twice, per day. As
of late, this hasn’t always been the most upbeat
segment of articles, and if one was to just read
the negative headlines, one might think that
the plans are not of value to employees or not
a good way to save. After all, frequently the articles are written
about poor or opaque investment options, or high fees—all of
which may be contributing to the rise in participant lawsuits.
In checking Twitter and our news feeds the days after the
tax plan was released, I was relatively amazed at the contradiction I saw between the articles that take a negative posturing or
consistently suggest 401(k)s are fleecing their participants, but
as soon as the plans might be taken away, it’s a call for all hands
on deck to protect those same plans. Many times, these alarms
do spur action, whether on Twitter or in comment letters to the
Department of Labor (DOL), and one can only hope such opinions are heard.
I’m optimistic that the tax treatment of retirement plans will
remain, as I can’t see any way in which eliminating it would help
the broader issue and concerns regarding coverage or availability.
But I am also hoping that perhaps this threat of having the retirement system dismantled will lead to an enhanced appreciation
of employer-sponsored plans and increased participation and
savings. Could the whiplash around tax cut discussions actually
be worth the stress?
—Alison Cook Mintzer, Editor-in-Chief
of the phrase
some to believe
be at risk.