Trump vows ‘no change’ to 401(k) rules in Republican tax bill
President Trump has raised expectations about the GOP’s timetable for tax reform. (Oct. 23, 2017)
President Trump on Monday vowed there would be “no change” to rules for 401(k) plans, seeking to douse speculation that the Republican tax overhaul bill being drafted by Congress would include new limits on retirement savings.
“This has always been a great and popular middle class tax break that works, and it stays!” Trump said on Twitter.
The outlines of the tax overhaul released by the White House and Republican leaders last month said that tax “reform will aim to maintain or raise retirement plan participation of workers and the resources available for retirement.”
Lawmakers are drafting legislation based on the framework, which is centered on a large cut to the corporate tax rate, other breaks that would benefit the wealthy and mostly unspecified promises of helping reduce taxes for the middle class.
But there have been reports that Republicans in Congress are weighing new limits on the upfront tax break for 401(k) savings as a way of generating additional federal revenue to offset money lost by the rate cuts and other proposed changes.
The New York Times reported Friday that House Republicans were considering placing a cap of as low as $2,400 on the annual amount that workers can put into their 401(k) accounts to defer tax payments until they tap the savings in retirement.
The current limit is $18,000, and it rises to $24,000 a year for people over age 50 to encourage them to save more for retirement.
About 43% of workers ages 25 to 34 who put money into 401(k) plans contribute more than $2,400 a year, according to the Employee Benefit Research Institute. The percentage rises as workers get older, with nearly two-thirds of contributors ages 55 to 64 exceeding $2,400 annually.
As of June 30, 401(k) plans held about $5.1 trillion in assets, about 19% of all U.S. retirement assets, according to the Investment Company Institute, a fund trade group.
About 54 million Americans were active participants in 401(k) plans in 2015, the latest figures available, the group said.
A Federal Reserve survey found that 401(k)s were the most popular way to save for retirement, with about 50% saying they had such a plan. But about 28% of U.S. adults who are not retired said they had no retirement savings or pension, according to the Fed survey.
Politicians and experts have worried that many Americans are not saving for retirement, a problem exacerbated by the decline of traditional workplace pension plans.
Senate Finance Committee Chairman Orrin Hatch (R-Utah), who will play a key role in consideration of tax legislation, said Monday that his panel “will not change the 401(k) retirement savings system in a manner that does not achieve the goals outlined in the unified framework; namely, to maintain or raise retirement plan participation for workers and the resources available for retirement.”
Republicans on the House Ways and Means Committee are drafting their version of tax legislation and plan to unveil it after Congress gives final approval of the 2018 budget plan, which is expected this week.
Asked by reporters Monday if Trump’s 401(k) tweet changed the direction of the committee’s work, Chairman Kevin Brady (R-Texas) said flatly: “No.”
Brian Graff — chief executive of the American Retirement Assn., a nonprofit group that represents pension professionals, plan advisors and actuaries — said he welcomed Trump’s promise that the tax overhaul would not include changes to 401(k) rules but acknowledged that placing new limits on the plans are a tempting target for lawmakers.
“They want to do tax reform, and they’re going to be looking for revenue, and we have to continue to remain vigilant,” Graff said.
The group’s annual meeting is this week in Washington, and 500 of its members will be on Capitol Hill on Tuesday urging lawmakers not to put new limits on 401(k) plans.
“They should not be using the 401(k) as a piggy bank for corporate tax cuts,” Graff said. “We’ve got to continue to make sure these people understand that retirement security is just as important as economic growth.”
In April, the American Retirement Assn. joined with other groups and businesses, including AARP, the Financial Services Roundtable and pension fund TIAA, to form the Save Our Savings Coalition to prevent changes to 401(k) rules in the tax overhaul.
The coalition said in a statement Monday that it was “thrilled” by Trump’s comments.
“Meaningful retirement incentives help millions of hardworking, middle-class families plan for their future and any effort to reform the tax code must protect these families and the retirement planning they’ve depended upon for generations,” the coalition said.
Twitter: @JimPuzzanghera
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UPDATES:
3:15 p.m.: This article was updated with comments from Rep. Kevin Brady and data from the Employee Benefit Research Institute.
11:55 a.m.: This article was updated with comments from Sen. Orrin Hatch.
9:55 a.m: This article was updated with figures on 401(k) participation and comments from the Save our Savings Coalition and Brian Graff of the American Retirement Assn.
This article was originally published at 6:35 a.m.
