No 401(k) Promises in GOP Tax Reform Framework

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By David B. Brandolph and Kristen Ricaurte Knebel

Republicans rolled out their framework for tax overhaul with a passing mention of encouraging retirement savings. They didn’t specifically address possible 401(k) changes, but that doesn’t mean change isn’t coming.

Vague on details, a one-paragraph section of the nine-page proposal, issued Sept. 27, says that tax legislation “will aim to maintain or raise retirement plan participation of workers and the resources available for retirement.”

The open-ended language of the framework really signals that the Republicans are still trying to figure out what they are doing, Lynn Dudley of the American Benefits Council told Bloomberg BNA. Dudley is senior vice president for global retirement and compensation policy for ABC, an employer advocacy group.

Republicans may have cooled to the idea of “Rothification” because there are doubts about whether it’s the right time to do it. There are also concerns that it would cause certain segments of the population to save less because it appears to cost “more money to make the same contribution,” Dudley said. “That doesn’t mean they aren’t going to circle back around to it,” she said.

“Rothification” is the buzzword being thrown around when it comes to tax reform and retirement savings. The prospect has a lot of employer and financial services groups worried about its impact on retirement savings.

The term “Rothification” refers to taxing retirement plan contributions up front, instead of waiting until they reach retirement. This move gives the appearance that the government is netting more money to pay for things like lowering the corporate tax rate within the 10 year budget window, but it really isn’t that simple.

“The tax writing committees will put the meat on the bones” of this framework and the potential for “Rothification,” or some version of it is still exists, Jill Hoffman told Bloomberg BNA. Hoffman is vice president of government affairs for investment management with the Financial Services Roundtable, an advocacy organization for the financial services industry.

Doubts Remain

If contributing to a Roth account were the only choice on the table, workers with no disposable income might not contribute to a retirement plan. The concern is that if workers see a reduction in their paycheck, they’ll be less likely to contribute funds to a retirement plan.

The tax-deductible 401(k) and the Roth account are equivalent in terms of building retirement savings, assuming that employees are paying the same tax rates now that they will be in retirement, David Burton, senior fellow in economic policy at the conservative think tank Heritage Foundation in Washington, told Bloomberg BNA. Despite the equivalence, some employees may be discouraged from contributing to a Roth account because it doesn’t offer an upfront tax deduction, he said.

For the same reason, small employers may be discouraged from sponsoring Roth retirement plans, Alicia H. Munnell, director of the Center for Retirement Research at Boston College, told Bloomberg BNA.

Complexity and Policy Questions

There are other things to consider that may affect the willingness of participants to contribute to a Roth.

“Roth accounts add an additional layer of complication for employees” that may discourage them from contributing, Munnell said.

Moving retirement savings to Roth accounts also begs the question of whether it’s an idea that’s consistent with retirement policy goals.

“Time will tell on the negative impact Rothification will have on retirement savings,” but what is clear is that Rothification is simply a “budget gimmick” that lacks any “real retirement policy discussion,” Will Hansen, senior vice president of retirement policy for the ERISA Industry Committee, told Bloomberg BNA. ERIC advocates for large employer plan sponsors.

To contact the reporters on this story: David B. Brandolph in Washington at; Kristen Ricaurte Knebel in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

For More Information

The Republican tax reform framework is at

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