Go figure—employers with 401k plans don’t want contribution limits reduced.
To pass a plan to lower taxes, Congress is considering either reducing or eliminating pre-tax contributions to qualified plans as part of a proposal to offset tax-receipt losses.
The Plan Sponsor Council of America surveyed plan sponsors to gauge the impact of limiting or eliminating pre-tax contributions to qualified retirement plans under various tax code provisions, including 401k and 403b.
It found that more than 90 percent of respondents indicated that they “strongly or somewhat agree” that eliminating or reducing pre-tax contributions to retirement savings plans is a bad idea.
“Plan Sponsors are very concerned about the potential impact of tax reform on their employees’ retirement savings,” Jack Towarnicky, PSCA’s executive director, said in a statement.
Additionally, not only should pre-tax contributions not be reduced, but well over 90 percent of employers strongly or somewhat agree that future pre-tax savings limits on 401k and 403b retirement plan savings should continue to be indexed to inflation.
Three-fourths of respondents to the survey currently offer a Roth feature to employees with thirty percent reporting 10 to 20 percent of eligible employees making Roth contributions and a quarter reporting contributions by 5 to 10 percent of eligible employees.
Sixty percent of employers who don’t currently offer Roth have evaluated offering it and chose not to. Of those not offering Roth, 60 percent are very or moderately concerned with the cost and administrative complexity of adding Roth.
Fully 85 percent of plans are likely to, or would continue offering a plan if Congress decreases pre-tax savings limits. Interestingly, this drops to 70 percent of plans if Congress changes the laws to Roth only.
More than half of employers promote the pre-tax nature of plans to encourage savings to a high degree and more than half strongly agree with the statement that they rely on the organization’s 401k or 403b plan to attract and retain employees.
“As Congress considers options that would raise revenue to offset the cost of reducing marginal income tax rates, our tax-qualified retirement plans may be a target,” Towarnicky concluded. “Much depends on the specifics of any tax reform proposal. One option Congress may consider would be to limit or eliminate pre-tax contributions.”