A new Senate resolution hoping to at least recognize the long-term importance of tax-deferral incentives for retirement savings – "low-hanging fruit" in this time of 11th-hour fiscal cliff budgetary wrangling – is making the rounds in Washington, with some extra support from the retirement industry.
Senator Max Baucus, Chairman of the Senate Committee on Finance, and the committee's ranking member, Orrin Hatch, have both been praised by the Financial Services Institute for Senate Concurrent Resolution 62, which asks that the positives of tax deferral present in plans from 401(k)s to private pension plans be thoroughly considered before being hastily included as a possible revenue source in the ongoing financial crisis.
The resolution, a "Sense of Congress" statement, reiterates that current tax incentives for retirement savings do indeed provide important benefits for Americans, as well as actually providing the impetus for workers to help prepare for their own retirement – in the absence of any other nationalized retirement or pension plan, other than Social Security.
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Dale Brown, president and CEO of the FSI, offered a letter of support Monday to the resolution, suggesting that those tax incentives need to be protected in order to maintain the American public's sometimes tenuous opportunities to prepare for their own retirement.
"Any attempt to amend the tax code by reducing the amount employees can save each year will jeopardize the retirement security and quality of life of these American workers," Brown said, in a statement. "If the benefits in the tax code were to be removed, many people may not have the proper incentives to save sufficiently for their retirement. In addition, if changes are made, employers may choose not to sponsor retirement plans."
Brown also repeated the sentiment that the taxes deferred through tools such as 401(k)s – while appealing to leaders looking for an easy fix to America's pressing financial needs – don't entirely disappear from the system. What's worse, if those tax benefits are plucked at this point, the government will only have an even more expensive problem to try to handle in the future as America's retirees face a larger savings crisis down the road.
"It is important to note that taxes on retirement savings are deferred, not avoided," he said "The tax code does not treat contributions to a retirement savings vehicle as an exclusion or a deduction of taxable income. This has the effect of encouraging people to set aside money for their retirement while providing a defined stream of taxable income in the future. Maintenance of the current tax structure allows and incentivizes retirees to exercise individual responsibility in preparing for their own retirement outcomes."
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