The employer-based retirement industry is keeping a cautious eye on Congress, where lawmakers, according to The ERISA Industry Committee, are considering altering the tax-favored status of 401(k) plans as one option to pay for President Donald Trump’s proposed tax reform.
Although the Trump administration has said it wants to protect retirement accounts from tax reform, they must find money to pay for it in some way, says ERIC’s Will Hansen, senior VP of retirement and compensation policy, and the industry wants to be proactive in protecting retirement plans.
“Congress will ultimately have to figure out how to pay for [tax reform],” he says. “House Republicans are floating the concept to do” it by examining the tax-favored status of 401(k) plans.
Hansen believes House Republicans will act before the 2018 election cycle. “Tax reform is their path to ensuring their majority in the election,” he says.
However, Nevin Adams, chief of communications at the
Alex Assaley, managing principal, retirement plans at Bethesda, Md.-based AFS 401(k) Retirement Services LLC, believes advisers need to keep eye on potential upcoming proposals and work now to influence the outcome. “We do everything we can to communicate with Congress and elected officials so they fully understand how the private retirement system works, and the value of pre-tax referral,” Assaley says of his work with the ARA.
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Altering the tax-favored status, ERIC’s Hansen says, would likely cause employees to save less, as they would see a change in their after-tax income and will likely make adjustments to maintain the same amount of money in their bank accounts. “We will see drastic [changes] in retirement contributions,” he says.
