The Congressional Budget Office (CBO), the official budget scorekeeper for Congress, released a paper Nov. 13 outlining various options for reducing the federal budget deficit over the next 10 years, including cuts in the tax incentives for retirement savings. Among the options the CBO proposes: reducing the maximum amounts that can be contributed to retirement plans for workers of any age, and eliminating catch-up contributions that currently allow those over 50 years old to make additional contributions to their retirement plans. Specifics include:
• Reducing the annual individual contribution limit to qualified retirement plans from the current level of $17,500 ($23,000 if eligible for catch-up contributions) to $15,500
• Reducing the annual individual contribution limit to IRAs from the current level of $5,500 ($6,500 if eligible for catch-up contributions) to $5,000
• Reducing the total allowable employer and employee contributions to a qualified retirement plan from the current level of $51,000 to $46,000
• Requiring that all contributions to employment-based plans, including 457(b) plans, be subject to a single combined limit
The proposed cuts in the tax incentives for retirement savings are projected to raise $88.7 billion in revenue over the next 10 years.
As the CBO admits in the paper, eliminating catch-up contributions would have a disproportionate impact on older Americans who might have failed to save enough for retirement. The CBO also recognized that reducing the employer contribution limits would cause small businesses to terminate their plans, which would seriously affect rank and file employees.
However, the CBO fails to note that the tax incentives for retirement savings are deferrals, not deductions. Cutting limits raises venue in the short term, but revenue will be lost outside the budget window when taxable distributions are reduced. Cutting the current contribution limits would produce short-term deficit reduction while causing long-term damage to the retirement security of tens of millions of working Americans who participate in these plans.
PBGC Premium Increases
A second proposal in the CBO paper would increase PBGC single-employer flat-rate premiums by 15% and variable-rate premiums by 33%, increasing federal receipts by an estimated $5 billion over the next 10 years. PBGC premium increases are also a budget charade, counting as deficit reduction even though the additional premiums go to PBGC and are not available to offset other federal spending.
Coming on the heels of recent double-digit increases in premiums, this would further penalize employers who are still willing to sponsor defined benefit plans and encourage them to leave, or never enter, the system. ASPPA and NAPA will continue to remind Congress that these proposals would produce phantom revenue gains at the expense of long-term retirement security, and should be soundly rejected.
Andrew Remo is ASPPA’s Congressional Affairs Manager.
