September 13, 2017

The Honorable Kevin Brady
Chairman, House Committee on Ways and Means
301 Cannon House Office Building
Washington, DC 20515

Dear Chairman Brady:

The Coalition to Protect Retirement (CPR)—composed of the leading trade associations representing retirement plan sponsors, administrators, service providers, and related financial institutions—appreciates your leadership as you develop tax reform. The Coalition would greatly appreciate the opportunity to meet with you, committee staff, and/or members of your tax reform working group to provide input and discuss our concerns as this process progresses.

The Coalition’s mission is to encourage and support retirement savings for American workers through preservation of tax incentives critical to retirement security. The coalition includes: American Benefits Council, American Council of Life Insurers, American Retirement Association, The ERISA Industry Committee, The ESOP Association, Insured Retirement Institute, Investment Company Institute, Plan Sponsor Council of America, Securities Industry and Financial Markets Association, and the Society for Human Resource Management.

Current incentives are very successful in fostering retirement security, capital formation, economic growth and limiting pressure on government programs. With 10,000 Americans reaching retirement age every day between now and 2030, the need for tax incentives to encourage and protect retirement savings has never been greater.1 The current tax structure for employer-sponsored and individual retirement plans and other private-sector savings solutions have resulted in a successful system that provides financial security in retirement for Americans at all income levels. This same tax structure simultaneously contributes very substantially to capital formation and economic growth.

As of June 2017, retirement assets total $26.1 trillion—accounting for 34 percent of all household assets in the United States.2 This multitrillion dollar pool of capital also helps to finance investments that enhance productivity and encourage business expansion.

Existing retirement savings incentives have been a critical impetus for individuals to save and for employers to offer and contribute to public and private-sector retirement plans. The pre-tax treatment of retirement savings plans is a key incentive that powers saving for the majority of American workers. Current law permits a choice between pre-tax contributions and after-tax (Roth) contributions. Any proposal that removes this choice by requiring retirement savings contributions to be made after-tax represents a major change in the system which needs to be thoroughly studied and socialized with taxpayers.

Additionally, it is vital to continue strong tax incentives for employers to maintain retirement plans for their workforce. According to the 2016 SHRM Benefits Survey, 94 percent of employers who responded offered a retirement savings plan in their workplace. 3 A 2016 survey reports that for households with defined contribution plans, tax treatment is “a big incentive to contribute” for 80 percent of households, with 44 percent of households indicating “I probably wouldn’t save for retirement if I didn’t have a retirement plan at work.”4

Retirement tax incentives also limit demands for potential increases in federal spending on safetynet government programs. Finally, tax deferral differs fundamentally from other tax incentives because it is not a permanent exclusion from tax.5 Income tax on retirement savings generally is paid, at ordinary income rates, upon distribution. Not appreciating this distinction can lead to inaccurate perceptions of long-term revenue effects of changing the tax treatment of retirement savings.

The House tax reform Blueprint indicates that proposals could be considered as part of tax reform that would consolidate and reform retirement savings provisions and that would create new, more general savings vehicles. It is the experience of the members of the Coalition that the multiple workplace retirement plan options in the current tax code, provide employers and employees the ability to tailor their plans to meet the needs of their workforce. Our view is that the current system results in more attractive retirement savings options for American businesses, resulting in broader and deeper coverage. The Coalition is open to potential simplification ideas that do not negatively impact successful retirement savings plans.

Continue Reading >

1 Insured Retirement Institute Fact Book 2016: A Guide to Information, Trends, and Data in the Retirement Income Industry.

2 Investment Company Institute, The US Retirement Market, Third Quarter 2016 [Fourth Quarter 2017].

3 The Society for Human Resource Management, 2016 SHRM Benefits Survey, June 2016.

4 Investment Company Institute. “Americans Views on Defined Contribution Plan Saving, 2016,” ICI Research Report (February 2017). 5 See Investment Company Institute, “Retirement Plan Contributions Are Tax-Deferred—Not Tax-Free,” ICI Viewpoints (September 16, 2013).