Institute Raises Budget Concerns to Legislators

The statement, submitted the House Committee on Ways and Means and the Working Group on Pensions and Retirement, addresses budget provisions that would cap the total amount of savings an individual can accumulate in tax-favored retirement plans and limit the value of exclusions for employee deferrals in 401(k) plans.

“At a minimum, the proposals will increase the costs ultimately borne by all American workers trying to save for retirement, not just the higher-income workers whom the provisions target,” said Larry Goldbrum, general counsel of The SPARK Institute. “At worst, the proposals will adversely impact the availability of plans and the amounts contributed by employers, particularly among small businesses.”

The SPARK statement expresses concern about the complexity that the proposed savings cap would add to the administration and operation of all retirement plans. According to Goldbrum, “Although the proposed cap on its face may appear to only impact higher-income individuals, it will have implications for everyone who saves for retirement. The administrative, compliance and reporting costs resulting from it will ultimately be borne by all individuals trying to save for retirement, not just higher-income workers.”

There is also concern that the budget provisions would limit the value of exclusions for employee deferrals in 401(k) plans with the most-recent iteration including language intended to address criticisms about an earlier version that would have resulted in double taxation of deferrals that exceeded the limitation.

"The proposed correction to address the unintended consequence of double taxation would require tracking individual taxpayer basis on the disallowed amounts, which will add further complexity for employers who already struggle with administering complex plan rules," Goldbrum noted.

While recognizing the need to resolve the country's budget and deficit problems, Goldbrum said that The SPARK Institute urges the Committee on Ways and Means and Working Group on Pensions and Retirement not to do so by adding complexity and costs to the voluntary employer-sponsored retirement plan system, which is already burdened by regulatory complexity.

A copy of the statement is available at http://www.sparkinstitute.org/comments-and-materials.php.