Skip to main content

You are here

Advertisement

Study of Danish Pension Plans Questions Effects of U.S. Tax Incentives

Using data from Denmark, an academic researcher showed that tax breaks for retirement savings have little effect on how many people save, especially those with lower incomes. As reported in a New York Times blog on economics, the researchers used Danish data because it was more detailed and because the U.S. and Danish pension systems are similar.

With the tax incentives for retirement savings front and center as part of efforts in Washington to balance the federal budget, politicians will be looking at the benefits those incentives produce and what might happen if they are reduced.

Among the questions raised in the research were whether participants in auto plans offset savings elsewhere, and whether so-called passive savers — who tend to be lower income — change their behavior as a result of changes in the tax incentives. The research showed that wealthier savers clearly responded to changes in tax incentives.

Though the research is interesting, there is no way to tell whether patterns in both countries are the same. “This is yet another example of a news outlet jumping to conclusions about the 401(k) system based on completely irrelevant data — in this case a Danish study,” says Brian Graff, the American Society of Pension Professionals and Actuaries’ Executive Director/CEO. Research using American taxpayers clearly shows the importance of the tax incentives for retirement savings, Graff notes. For example, according to the Investment Company Institute, 83% of participants in 401(k) plans oppose any reduction in contribution limits.

Additionally, a survey conducted by the Employee Benefit Research Institute shows that those workers with the lowest incomes are most sensitive to the tax incentive and most likely to reduce their retirement savings if the incentive is taken away.

“Fighting misinformation like this is why NAPA, along with its sister organization ASPPA, created the new ‘Save My 401k’ campaign,” Graff notes. Advisers can support that campaign by encouraging plan sponsors and participants to visit savemy401k.com, where they can contact their representatives in Congress about the importance of protecting the tax incentives for 401(k) plans.

Advertisement