Testifying before a July 19 House Ways & Means Subcommittee on Tax Policy hearing on simplifying the tax code, NAPA Vice President Jania Stout offered several recommendations to help make it easier for small businesses to offer retirement plans and for American workers to save in these plans.
Preserving Current Incentives
Stout, who is practice leader and co-founder of Fiduciary Plan Advisors at HighTower, warned the subcommittee to not make changes that would have unintended consequences.
“Reducing the tax incentives — like freezing the retirement plan contribution limits that are currently indexed to inflation or capping the retirement savings exclusion rate for individuals in certain income tax brackets — would be the wrong way to go,” she testified.
Stout explained that reducing the incentives in these ways would discourage small business owners from offering and contributing to workplace-based retirement plans, resulting in fewer plans and lower employer contributions for rank-and-file employees, jeopardizing the retirement security of middle class Americans and undermining long-term economic growth.
MEPs, Tax Credits Would Boost Coverage
Stout also supported the Retirement Security for American Workers Act (H.R. 854), legislation that would let businesses join together in multiple employer plans (MEPs) with pooled plan providers to share the administrative burden and costs of offering a retirement plan. “Pooling unrelated employers together into one plan creates economies of scale that lower both employer and plan participant cost, which will ultimately boost retirement plan coverage in the private sector,” Stout told the subcommittee.
Stout also encouraged the subcommittee to support proposals to increase the pension plan startup tax credit to help reduce the cost to new small businesses that sponsor qualified retirement plans. Providing an additional credit to encourage the automatic enrollment of those workers into both new and existing plans would increase the number of workers saving, Stout added. At the close of the hearing, Subcommittee Chairman Pete Roskam (R-IL) said he wants to further explore Stout’s suggestion to provide an additional credit for automatic enrollment.
Integrating HSAs with 401(k)s
Turning to current proposals to expand HSAs, Stout urged the subcommittee to modify the tax code to give plan sponsors the option of offering an HSA as a “sidecar” account to their 401(k) plans.
“As someone who works with thousands of employees a year to help them with their savings decisions, it makes the most sense for employees to be able to make the 401(k) and HSA contribution decisions together, on a holistic basis,” Stout said. Integrating HSAs into 401(k)s would also provide participants with access to lower cost investment options offered in the 401(k) plan, and would spur development of financial advice tools to help employees make savings decisions that best fit the financial and health needs of their families, she noted.
Stout noted that she supports the recommendations from both the Bipartisan Policy Center and the ERISA Advisory Council to authorize a national retirement security clearinghouse to streamline transfers and rollovers among workplace retirement plans and IRAs. In addition, she urged the subcommittee to support the Shrinking Emergency Account Losses (SEAL) Act, sponsored by Rep. Sam Johnson (R-TX) in the House and Sen. Mike Enzi (R-WY) in the Senate, which would permit individuals to continue to pay plan loans if a plan is terminated or a plan participant becomes unemployed.
Flexibility via Diversity
Finally, Stout cautioned the subcommittee against tax reform proposals that would consolidate the various types of DC plans into a single type of plan. Noting that that would not be simplification in her view, Stout explained that, “Each of these plans are designed to meet the needs of the various employer sectors for which they were designed. These employers need the flexibility afforded by these alternate designs.”
The hearing, which focused largely on tax simplification, had the air of a “welcome back” party for retired congressman Bill Archer, who chaired the House Ways & Means Committee for six years before retiring in 2001. Archer testified that, “I pray that you will be allowed to rise to this occasion and complete the long-delayed goal of simplifying and rationalizing our tax code.” The hearing also featured testimony from Bernard McKay of the Council for Electronic Revenue Communication Advancement and Eric Rodriquez of UnidosUS, until recently known as La Raza.