NAPA Head Warns of 401(k) Revenue Grab by Policymakers

The retirement plan advisory industry should stay alert to policymakers considering scale-backs to tax-advantaged retirement programs as they seek revenue options in 2025, according to the head of the National Association of Plan Advisors.

The debate over tax offsets “is coming regardless of the [election] outcome, regardless of whether it’s Biden or Trump, regardless of whether Democrats or Republicans control the House and the Senate,” Brain Graff, executive director of NAPA and CEO of the American Retirement Association, said Sunday at the organization’s 401(k) Summit in Nashville.

Part of the reason for this potential discussion is the Tax Cuts and Jobs Act of 2017 expiration in 2025, Graff said, which will create a moment of tax debate among parties. In addition, he notes, the federal deficit has ballooned and may come back into the national conversation, which in turn will put further pressure on discussion of Social Security and Medicare funding.

“It has been decades since deficit reduction has been a focus for Congress, but for reasons I’ve discussed deficit reduction could return next year,” Graff said. “Previous deficit discussions have not been friendly to the 401(k) industry.”

Graff also pointed to recent attacks on the private retirement plan system. On one side of the political aisle, economists from conservative think tank the Manhattan Institute for Policy Research recently got media attention for championing the idea that the tax-advantaged 401(k) may go away—in part based on the idea that savings is not driven by the tax break, but auto enrollment. On the other, Bernie Sanders, I-Vermont, held a Senate Health, Education, Labor and Pensions Committee session in March in which he called the retirement system “a disaster for working people” and discussed a return to a defined benefit pension system.

“Right now, no one is seriously considering these drastic ideas,” Graff said. “But the real concern is that as the larger tax debate begins the negativity around 401(k) plans makes it easier for Congress to tap into the retirement savings tax incentives to pay for other stuff.”

Considering Taxes

Jamie Cummins, senior tax counsel, U.S. Senate Committee on Finance, appearing on stage with Graff, did not say that the Republican caucus in Congress is specifically looking at the defined contribution market for tax offsets, but agreed with the overall sentiment that policymakers will be considering taxes in 2025 against the revenue targets they want to achieve.

“Of course it’s the case that members throughout the Senate and the House …. are going to be looking at everything and seeing where there are places to improve the tax code,” said Cummins.

Preston Rutledge, founder and principal of the Rutledge Policy Group LLC and former senior tax and benefits consultant to the Senate Finance Committee, noted to the audience that when budget decisions are made, those not engaged can be at the most risk.

“If you’re not at the table, you’re on the menu,” he said. “You have to advocate, early, often, and consistently.”

Rutledge, who is a former head of the Department of Labor’s Employee Benefits Security Administration, noted that the ARA had been taking an active approach, and called on the audience—as other NAPA leaders had done through the conference opening—to support the ARA political action committee.

Rutledge also pushed back on the idea that the 401(k) system is keeping revenue from the government. He said that policymakers should consider that the DC system defers taxes, but that the government still gets paid on withdrawal.

“When you do get to retirement that money will come out of the account and you will pay ordinary income on it,” he says. “If we cut [the tax deferrals] too much now we starve the ability of the government to function in 10, 15 or 20 years from now.”

Private/Public Partnership

Graff and panelists also discussed the Retirement Savings for Americans Act, a bill proposed by Congressional leaders in 2022 calling for a federally-sponsored retirement plan with the goal of shrinking the retirement savings coverage gap.

That act was a key focus of discussion at the 2023 NAPA conference, with association leaders arguing it would undercut the current private 401(k) system and not have the intended results. Shannon Finley, partner, Capital Counsel LLC, which works with the ARA, said she and others have spent “an inordinate” amount of time speaking with Democrats about the pitfalls of such a program, including “using the money to sure up Social Security rather than creating an alternative system.”

She did note, however, that “sometimes the worst ideas” can become policy.

Finley and Graff went on to discuss a proposal made in February by Representative Richard Neal, D-Massachusetts, the ranking member of the House Committee on Ways and Means, called the Automatic IRA Act of 2024. That bill seeks to require employers with more than 10 employees to offer a retirement plan of some kind. Finley noted that Neal’s plan had actually been part of the original SECURE Act 2.0 of 2022, but was eventually dropped in negotiations.

NAPA’s Graff noted the organization’s support of that plan along with the state retirement plan mandates that have been enacted or are in discussion.

“We think expanding the current public/private partnership that exists is the right way to go,” he said.

Finally, the NAPA leader discussed with the panel the industry’s ongoing push for legislation that would allow collective investment trusts to be used in 403(b) plans alongside other DC plans such as 401(k)s. The House approved such a measure in March and it is now before the Senate.