American Benefits Council Advocates for Tax Preferences for Next 5 Years
In its policy guide, the national trade association emphasized the importance of protecting retirement and health plans under ERISA and maintaining the current tax incentives associated with these plans.
Wednesday, the American Benefits Council released its public policy strategic plan for employer-sponsored retirement and health plans for the next five years—with an emphasis on the next several months, as lawmakers debate tax and economic policy.
“DESTINATION 2030: A Roadmap for the Future of Employee Benefits” is a more-than-150-page guide that enumerated 79 specific policy recommendations to support employer-sponsored plans and the “millions of American families who rely on them,” according to the American Benefits Council—a national trade association based in Washington, D.C., that advocates for employer-sponsored benefit plans.
The 2030 strategic plan identified the five most pressing challenges facing plan sponsors today, four goals to address each challenge and policy recommendations for meeting these goals. The main challenges it identified were: improving holistic well-being; legal and regulatory uncertainty; demand for personalized and individualized benefits; increased individual responsibility; and aligning health care cost and quality.
The American Benefits Council also identified core issues impacting the Employment Retirement Income Security Act of 1974 and tax policy—one of them being to “preserve, protect, defend and enhance the current tax incentives supporting participation in employer-provided retirement plans—both the full federal tax deferral for participating employees and the tax deduction for plan sponsors.”
The concern comes as Congress is in discussions to extend the 2017 Tax Cuts and Jobs Act, a major priority for President Donald Trump.
According to the council, tax incentives for employer-provided health and retirement plans are regularly scored as “the two largest income tax ‘expenditures’ in the federal budget. Together, the exclusion from individuals’ income tax of contributions to employer-sponsored health and retirement plans represents a theoretical cost to the federal government of $6.1 trillion over the next 10 years.”
The “forgone revenue” attributable to the tax incentives for retirement plans (setting aside the future taxes collected at distribution) equaled $204 billion in 2023, according to the report. The Bureau of Economic Analysis reported that employer plans paid out $1.9 trillion in benefits in that same year. Dividing $1.9 trillion by $204 billion reveals $9.31 in benefits provided for every tax dollar spent.
“Policymakers who advocate scrapping employer-sponsored benefits—or the tax incentives making these benefits possible—should be aware of this compelling return on investment and understand it would cost far more to provide the same level of health and financial security outside of the employer-sponsored system,” the council wrote in its report.
As Congress pursues comprehensive tax reform or smaller tax measures, the council urged lawmakers to do no harm to the tax structure of employer plans, treat tax incentives for employer plans as “prudent investments” and pursue opportunities to expand the employer-sponsored system.
The council argued in the report that pre-tax retirement savings is a powerful motivator for individuals, and it encourages employers to sponsor plans that deliver “meaningful benefits” to Americans along the income scale. As opposed to after-tax or Roth retirement vehicles, the pre-tax structure allows employees to save more on a paycheck-by-paycheck basis than would be the case with after-tax contributions. This benefit is particularly important for low- and middle-income families who are very dependent on their monthly income, the council stated in the report.
“This is not money that’s lost to the government,” says Lynn Dudley, the council’s senior vice president of global retirement and compensation policy. “It’s money that’s delayed to the government, and that actually has a value to the government too. … You want some people to do Roth, and some people not. And I tend to think the proposals that you will see on the table will preserve [both pre-tax and after-tax] options.”
Beyond tax policy, the report addressed issues related to safe harbors and compliance, implementation of the SECURE 2.0 Act of 2022, retirement plan investments, defined benefit plans, small employer plans and more.