May 20, 2016
Dear Chairman Brady,
The Coalition to Protect Retirement (CPR) commends the Tax Reform Task Force for its dedication to reform the tax code. As the task force moves forward with tax reform discussions, we hope that you will utilize CPR as a resource, as we represent a broad group of stakeholders that can provide you with a unique perspective on potential impacts of changes to the system that may affect retirement plans and participants.
CPR believes that Congress should encourage retirement savings for American workers through the preservation and enhancement of current tax incentives. CPR is composed of the leading trade associations representing retirement plan sponsors, administrators, service providers, and related financial institutions, and includes: American Benefits Council, American Council of Life Insurers, American Retirement Association, The ERISA Industry Committee, 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. The Coalition’s mission is to encourage and support retirement savings for American workers through preservation of tax incentives critical to retirement security.
The current tax structure for employer-sponsored and individual retirement plans has resulted in widespread and successful system that enables working Americans at all income levels to enjoy a financially secure retirement. Congress should work to encourage and support retirement savings for American workers through the preservation of the current tax structure and creation of tax incentives critical to encouraging American workers to save for retirement.
Employer-sponsored and individual retirement plans are key components of our nation’s retirement system. Together with Social Security and individual savings, retirement plans produce significant benefits for America’s working families. Private sector retirement plans in the United States paid out nearly $5 trillion in benefits from 2005 through 2014 playing an essential role in providing retirement income for millions of our nation’s seniors. In 2013, there were approximately 637,000 private-sector defined contribution plans covering 92.5 million participants. Additionally, the Pension Benefit Guaranty Corporation insured over 42 million defined benefit plan participants in 2013. According to an Investment Company Institute analysis of the Survey of Consumer Finances, in 2013, 81 percent of near-retiree households (working households age 55-64) had accumulated retirement assets, accrued pension benefits, or both.
The current employer-sponsored retirement system is vital for American workers to be able to save for retirement. The employer-based system is designed to work with other personal savings and the Social Security program to provide meaningful income replacement upon retirement. These retirement plans work. Currently, Americans have $24.0 trillion earmarked for retirement, including $6.7 trillion in defined contribution plans, $2.9 trillion in private-sector defined benefit plans, $5.1 trillion in public sector employer-sponsored defined benefit plans, $7.3 trillion in IRAs, and $1.9 trillion in annuities held outside retirement accounts. Employers have helped to make this happen—having contributed almost $5 trillion to retirement plans sponsored by both public sector and private sector employers from 2005 through 2014. Retirement benefits paid from employer-sponsored plans, substantially reduce the financial pressure on Social Security and other government programs. Consequently, the tax expenditure accorded to employer-sponsored plans represents a very cost-effective method of ensuring retirement security for America’s seniors.
This multitrillion dollar pool of capital also helps to finance investments that enhance productivity and encourage business expansion. The tax treatment of employer-sponsored plans encourages business owners to provide a retirement plan for their employees – essentially giving individuals the opportunity to save. These plans cover workers across the income spectrum. Under current law, if business owners sponsor a retirement plan, they also must cover and provide benefits to lower-income and middle-income employees. More than 70 percent of American workers earning between $30,000 and $50,000 a year save for their retirement when covered by a plan at work.
Many American workers also enjoy a retirement savings contribution from their employer. The Plan Sponsor Council of America survey reports that in 2014, nearly 96 percent of companies made a contribution to their employees’ retirement plan. In 2015, 73 percent of human resource professionals surveyed said their company provided a matching program for their employees – further increasing the value of these accounts. The opportunity to save through payroll deduction helps millions of Americans save for retirement. Elimination or reduction in the positive tax treatment of retirement plans will have a negative effect on capital markets and individual savings.
Retirement tax incentives are fundamentally different from other tax incentives because they represent a deferral of tax, not a permanent exclusion from tax. Income tax on retirement savings is paid, at ordinary income rates, upon distribution. Not appreciating this distinction can dramatically overstate the revenue effects of retirement savings plans.
The Coalition to Protect Retirement believes that Congress should encourage and support retirement savings for American workers through the preservation of current tax incentives critical to American workers’ retirement security. With more than 10,000 Americans turning 65 every day, the need for tax incentives to encourage and protect retirement savings has never been greater. This is especially true for Americans who are still working and saving but may not feel that they are on track to have adequate savings to support themselves once they leave the workforce. Congress should preserve existing tax incentives for individuals and employers to help Americans attain financial security for their retirement years and to avoid the need for more federal spending to support retirees facing economic hardship.
The current structure for employer-provided and individual retirement plans has resulted in a widespread and successful system enabling working Americans at all income levels to enjoy a financially secure retirement. The Coalition hopes that the task force will consider the success of the current retirement tax structure as it weighs comprehensive tax reform legislation. We look forward to working with you as this process progresses.
The Coalition to Protect Retirement
Coalition to Protect Retirement Members:
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
Society for Human Resource Management