How Saving for Retirement Could Get a Lot More Difficult

If you’re anything like me, you don’t spend too much time thinking about how much money is in your retirement account.  Yes, I know, I’m a tax and benefits lobbyist, so you’d think that I’d know what my balance is down to the penny!  But the truth is, like many employees, although I know that I’m contributing to my retirement account, I don’t fret about the details on a daily basis. That’s about to change, as pending tax reform could significantly impact not only the types of investment options available but whether employees will have access to a retirement account at all.  

Currently, Congress is eyeing ways to shore up revenue and could further tinker with how you save for retirement and what types of plans an employer can provide. Just yesterday, Dave Camp (R-MI), Chairman of the House Ways and Means Committee, unveiled a tax reform proposal, the Tax Reform Act of 2014, which would reform both personal and corporate tax rates. This proposal includes lowering the amount you can contribute to your 401(k) by half, removing indexing for inflation and changing the rules that govern rollovers and hardship deductions.

So, what does this mean for employers and employees? It limits flexibility for employers, especially small employers, as they try to craft a retirement plan that suits their workforce. It also affects the amount employees can put into their retirement account per year and the rules that relate to those funds.

I’m not suggesting we hit the panic button just yet. Chairman Camp’s proposal will not likely be taken up this year, but it could serve as a framework for reforms to the tax code in the future. SHRM has been busy advocating on this issue and believes tax incentives should be used to expand retirement savings. Provisions that encourage savings, such as increased contribution limits and catch-up contributions for older workers, are beneficial.  SHRM also chairs the Coalition to Protect Retirement, which is advocating for the preservation of the current tax treatment of retirement plans. HR professionals and businesses alike need to be keenly aware of what could be at stake once tax reform really gets rolling.

If you’d like to learn more about how your retirement account could be impacted by various tax reform proposals, and how to get involved, please visit www.howamericasaves.com and be sure to write to your Member of Congress!   And if you’d like to walk the halls of Congress and weigh in on this issue in person, then consider joining me at the 2014 Employment Law & Legislative Conference March 17-19.