It’s not what you know that can hurt you; it’s what you don’t know.
That adage is particularly appropriate today as Congress quietly considers an issue that could affect every American—yet few are aware of it.
While every conscientious HR professional has been working overtime to keep up with the evolving status of the Affordable Care Act, developments with immigration reform, and the implications of new workplace rules, something else has been happening behind closed doors on Capitol Hill.
Believe it or not (and you had better believe it), the tax-writing committees in Congress are drafting legislation to eliminate or limit the tax-deferred status of retirement savings plans. If you’re thinking this comes at a time when the weak economy is making it more difficult for many Americans to save, you’re right. In fact, too many of us are not saving enough now for retirement.
How Congress might change the current tax incentives to save for retirement is as big a secret as Area 51. (Everyone acknowledges they both exist, but no one will say what they are!)
What’s not a secret is the fact that Congress and the Obama administration are looking for new revenue wherever they can find it. With the annual federal budget deficit totaling $600 billion and the U.S. national debt hovering above $17 trillion, everything is fair game. And the deferred taxes on retirement savings plans for you and your employees are as tempting to lawmakers as a busload of novice high rollers to a Vegas casino.
Make no mistake: The tax deferral for retirement savings is in Congress’ cross hairs, and some (or all) of us are going to pay more upfront if these changes are enacted.
The problem is that the current tax incentives represent one government policy that actually works as promised and intended. Studies show that Americans are incentivized to take responsibility for their own retirement security when there is an immediate incentive to save. The deferral rules don’t “lose” any tax money for the U.S. Treasury; rather, they simply trade immediate tax revenue (when people contribute to a savings plan) for long-term revenue (when retirees begin withdrawing their savings).
If tax deferrals for retirement savings were eliminated, people would be less likely to save. Additionally, changes to the current incentives could add costs and limit the ability of employers to offer and contribute to their employees’ retirement plans. This last point is not a small one, because if employers find it more costly or overly complicated to offer an employee savings plan, they may be likely to abandon this important benefit.
With more than 10,000 Americans retiring every day, the need for tax incentives to encourage and protect retirement savings has never been greater. This is especially true for Americans who are not on track to have adequate savings to support themselves once they leave the workforce.
Rather than devising regressive tax changes to raid workers’ retirement savings, Congress and the Obama administration should be preserving and strengthening tax incentives for individuals and employers. This is the most effective way to help Americans attain financial security and avoid the need for more federal spending to support retirees facing economic hardship later in life.
The good news is that the tax proposals under quiet consideration have not yet been finalized—or even announced. There is time to influence this issue, and millions of Americans plan to do just that. According to an October 2013 national survey, 95 percent of people with some form of tax-deferred retirement savings account oppose changing the tax rules. Thousands have already written to their elected officials and signed up to follow the Coalition to Protect Retirement, which SHRM is helping to lead.
The financial security of our families, friends, co-workers and neighbors is riding on our actions. This is too important a long-term issue to be left to a Congress motivated by quick fixes and fast money. Join other working Americans and their employers to tell Congress, “Retirement savings are off-limits!”
Visit www.HowAmericaSaves.com to learn more and to get involved.