With the prospect of comprehensive tax reform legislation looming, key ASPPA and NAPA members are leading an advocacy effort on behalf of plan sponsors and plan participants. The goal: to talk to key members of Congress about the way Americans save for retirement, and educate them about the importance of preserving the existing incentives for retirement, including 401(k) plans.
For example, a team of key members of ASPPA and NAPA led by 2011-2012 ASPPA president Robert Richter met with influential members of Congress at the Republican and Democratic national conventions. Those members included Senate Minority Leader Mitch McConnell (R-KY), Sen. Pat Toomey (R-PA), Sen. Ron Johnson (R-WI), Sen. Mike Crapo (R-ID), Rep. Vern Buchanan (R-FL) and Rep. Devin Nunes (R-CA). Sen. Crapo serves on the Senate Finance Committee, and Reps. Buchanan and Nunes serve on the House Ways and Means Committee — the two committees with primary jurisdiction over tax matters in Congress.
Meetings with Leaders in Congress
Among the various meetings, two stood out in the minds of the ASPPA leadership representatives. The first was the meeting with Senate Minority Leader Mitch McConnell, who “said that we have a very good story to tell,” recalls Richter, a V.P at Sungard. “He understands the concerns of small businesses; he understands our message and thinks it’s a very important one.”
Second, the meeting with Sen. Crapo helped crystallize the terms of engagement. Essentially, congressional tax writers “are going to pick a target tax rate” — figuratively starting with a clean sheet of paper, Richter explains. “If we’re looking at a legitimate social policy, such as encouraging retirement savings in our case, if they add that item back, it’s going to increase the marginal rate,” Richter points out. Each preference added back will increase the marginal rate even further.
Of course, there are supporters for each of the bedrock tax preferences, starting with the mortgage interest deduction. “That kind of hit home – it resonated with me just how serious and politically charged this could get,” Richter says. “It’s going to be a fight to determine which tax preferences are retained and which are not.”
Red and Blue
How were the two national conventions different? “It’s the spin that’s a bit different,” notes Brian Graff, ASPPA’s Executive Director and CEO, who accompanied the ASPPA/NAPA leadership team. “But the substance is the same: ‘401(k)s are how middle America saves — don’t mess that up.’ They got that.”
Republicans talk in terms of an “ownership society,” Graff notes. It’s important to them that Americans have a stake in the country, own stock in the market and own their homes. So ASPPA’s goal is to educate them about the fact that for most Americans, the way they own their piece of the stock market is through a workplace retirement plan — most often, a 401(k) plan.
Republicans also want savings and capital investment. Says Graff, “What we were doing there was to continue to make sure that Republicans understand that most Americans don’t have these huge private savings. Their savings are through workplace plans,” says Graff. “If you disincentivize those plans so they are no longer available at work, you’re going to eliminate tens of millions of Americans from saving in a way that generates capital investment. That’s not a good thing.”
At the Democratic convention, Graff says, the message was a little different. Noting that a lot of time was spent at the DNC criticizing Wall Street, Graff explains, “We wanted to remind key members of the Democratic leadership and members of the Ways and Means and Senate Finance committees that 401(k)s are not how Wall Street saves, they’re how Main Street saves. The 401(k) and the incentives that go with it are a tax incentive for the middle class. Warren Buffett and Bill Gates don’t care about their $17,000 annual 401(k) contribution, but middle class Americans do. That’s why it’s critically important that as we march toward tax reform, we retain these incentives.”
The Democrats with whom the ASPPA/NAPA team met were concerned about two things: making sure that qualified plans are doing something for lower income people, and making sure there’s coverage for more people than are currently covered. “Those are issues that as an organization, we’re working toward,” Graff points out. For example, President Obama has proposed requiring all employers above a certain size to offer at least a payroll deduction IRA — an idea that ASPPA supports, Graff notes. ASPPA’s message in this area is consistent: The more people who are covered, the better the chance is that most Americans will have a meaningful opportunity to achieve a secure retirement.
Starting with members of Congress, education is a key part of the process, notes Jim Dornan, ASPPA’s Political Director, who accompanied the team at the RNC in Tampa. “The members of the Finance and Ways and Means committees ‘get it,’” says Dornan — they know the minutia of the tax code and its nuances. But rank and file members of Congress are the next step. “They’re going to have to vote on tax reform eventually,” Dornan notes. “So we’re trying to have an impact early on, by expressing our concerns, our likes and dislikes about some of the proposals out there. That’s an ongoing process. It doesn’t end with the election; it doesn’t end when Congress goes home.”
In the wake of the RNC and DNA meetings, outreach efforts by NAPA leadership are continuing. The Sept. 30-Oct. 1 meeting of NAPA’s Leadership Council and Government Affairs Committee in Washington, for example, featured meetings with DOL officials and congressional advisors; several members also met with members of Congress on Capitol Hill.
Grassroots Effort
The members of Congress who met with the team in Tampa and Charlotte were also very clear that what ASPPA and NAPA should be doing is to leverage the more than 80 million American workers who have 401(k) plans — that is, get them interested in and concerned about the potential cuts to the incentives to save for their retirement. So for Graff, the main takeaway from the conventions is that, “Not only do we need to continue lobbying at a direct levels with members of Congress, we need to energize the people who are really going to be impacted: the participants in 401(k) plans.”
Clearly, tax reform could have a very significant negative impact on the retirement industry. “There doesn’t seem to be anything that’s going to promote more retirement savings,” explains Richter. “The best case scenario is that they leave things as is; the worst case scenario is that there could be some changes that would just decimate the small-employer plan market.” Richter believes that some small employers would terminate their plans and, given today’s economy, some providers would have to either merge or go out of business.
“That’s why we have to continue to make our case,” says Graff. “Part of doing that is a grass-roots effort so that Congress understands that there are tens of millions of workers who are really concerned about their ability to save for retirement being hampered.”
Michael Kiley, founder and president of Plan Administrators, Inc., who was part of the ASPPA/NAPA team that traveled to Tampa, agrees. “I would challenge us as an industry, and as a group: We have to absolutely make sure we are giving our participants an opportunity to voice their desire to retain this system and make the most of it,” he declares.
Getting the Word Out
Recognizing the need for ASPPA to carry the torch, Richter notes, the ASPPA board of directors authorized the creation of a tax reform task force to act on behalf of the board with respect to using ASPPA reserve funds to fight the battle. As an initial step, “We’ve been working on a “grass tops” effort to train ASPPA leadership how to best make our case to officials in their states and districts,” Richter explains.
The next step is the launch of a social media campaign to get the word out after the elections — a campaign in which NAPA will play a critical part, Graff explains. “We’re going to ask NAPA members to get out the word that there’s a potential cut in 401(k) plans on the horizon,” according to Graff. “The last time we had tax reform, they cut the 401(k) contribution limit by 70%. We can’t let something like that happen.”
The plan is to ask NAPA members to share the information in the campaign with their clients and the participants in their plans, says Graff, “so that they can start raising concerns with members of Congress that the last thing we need to do right now is cut our ability to save for retirement.”
Facing the Challenge
In terms of real tax reform, Graff doesn’t expect any action this year, pointing out that the 112th Congress, which reconvened Nov. 13, will be in session for only five weeks before it adjourns. His expectation is that Congress will pass some form of extension of the Bush tax cuts for a certain period of time — perhaps as much as a year. “Next year is where the action is,” Graff says. “That’s where most people are putting their chips.”
Richter cautions that once the rubber meets the road on tax reform, the process probably won’t be slow or drawn out, as many might think. “The concern is that this could all happen rather quickly. Once the new Congress is in place early next year, there is a distinct possibility this could be on a fast track,” he says. “That’s why the education that’s taking place right now is helpful and needs to be done. But it’s really going to get active next year, and we anticipate expending whatever resources are necessary to make our case. It’s a matter of using the resources we have — and using them wisely.”
