Today’s last-minute negotiations on raising the nation’s borrowing limit could impact 401(k)s, Roth retirement vehicles and more, if similar past showdowns give any indication. Bob Christenson, partner at Fisher & Phillips LLP, says he’s seen these debates on the Hill before and past lessons show that employee benefits could be impacted when the conversation turns to raising revenue through taxes.
“There may be more of a restriction on 401(k) plan contributions because they’ve done that in the past,” says Christenson, of the firm’s Atlanta office. “Everyone talks about limits on Roth contributions and the secret behind all that was — that was a revenue raising measure, too.” He also says he wouldn’t be surprised if lawmakers “tinker” with ways to make distributions on retirement savings vehicles easier because again, that would be a tax increase.
“From an employee benefits policy perspective, it’s not smart … but it’s what’s been done in the past and I wouldn’t be surprised to see it again,” he says.
Bill Sweetnam, principal at Groom Law Group in Washington, agrees that revenue raisers may be part of the equation, but nothing on a large scale. “Early on I would have said if they had done a grand bargain over the summer they could have done something with tax reform, but they don’t have the time for tax reform, so I think the employee benefits world is not going to be impacted unless they’re used as a revenue raiser that people want,” he says.
Sweetnam thinks two things could be on the table for employee benefits at this point:
1) Extending the relief that defined benefit plan sponsors get from MAP-21 interest rates — in other words, “requiring people to make higher funding contributions and thus raise revenue for the government,” he says.
2) Provide relief to multi-employer pension plans, which has been a heavily lobbied topic recently and could be a positive gesture towards benefits in all this.
Christenson says he suspects that with fewer personnel at the Internal Revenue Service, the voluntary compliance program “that a lot of qualified programs use to correct errors” will probably be down. “They’re not going to advertise that they don’t have the usual personnel,” he says. And that also goes for IRS and DOL audits and Employee Benefits Securities Administration investigations as well.
Christenson points out that there was a time when both parties discussed necessary “tweaks” to the Affordable Care Act, but with the polarization in Washington at this point, “the legislative activity of those potential changes that everyone agrees on could get changed,” he says.
As of press time, negotiations in Congress were ongoing. Stay with EBN for updates on legislative action, and what it could mean for benefits administrators and HR professionals.
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