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Deferral Nature of Savings Tax Incentives Recognized

admin | February 17, 2012 | 0 Comments

Recent studies confirm cash flow approach is misleading

Arlington, VA (February 17, 2012) -– The following is an statement of Brian H. Graff, CEO and Executive Director of The American Society of Pension Professionals & Actuaries (ASPPA).

“We are very pleased that the deferral nature of retirement savings tax incentives, which makes them different from other so-called tax expenditures, is getting the serious attention it deserves. Our publication of Retirement Savings and Tax Expenditure Estimates last spring has really brought this issue to the fore.

There has been a lot of research published on this topic in the past few months. For example, there was a thoughtful paper published in the National Tax Journal in December 2011 [1] that shows how varying assumptions can vary the present value of the 401(k) expenditure, but because of the deferral nature of the incentive, regardless of the assumptions, even a drastic reduction in the contribution limits would not make much of a dent our deficit. The more recent publication of a paper by Alicia Munnell is a formal presentation of a blog first published in January. I’d encourage those who find the Munnell paper of interest to read the comments we issued when the blog was first published.

The common theme in all of these papers is that the true cost of these incentives is not properly recognized in the current budget math. This is a very important message for policymakers, and we hope the true nature of these incentives will be considered when tax reform comes around. Bad math could result in bad policy if these deferrals are treated like any other tax incentive. “

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About ASPPA: The American Society of Pension Professionals & Actuaries (ASPPA) is a national organization of more than 8,500 retirement plan and benefits professionals that serves as the educator, voice, and advocate for the employer-based retirement system. ASPPA members are administrators, actuaries, advisors, attorneys, accountants, and other financial services professionals who provide consulting and administrative services for qualified retirement plans. www.asppa.org

[i] “LONG-RUN CHANGES IN TAX EXPENDITURES ON 401(K)-TYPE RETIREMENT PLANS”, Ithai Z. Lurie and Shanthi P. Ramnath