The tax incentives that help support employment-based health coverage and retirement benefits could be radically scaled back to support plans for tax reform in Washington.
To examine the implications for private-sector health and retirement benefits, as well as the costs and consequences and what the numbers are, the nonprofit, nonpartisan Employee Benefit Research Institute recently held a day-long policy forum in Washington, attracting approximately 100 experts, benefits professionals, and policy makers to provide their perspectives and predictions.
As a new EBRI report about the forum notes, the reach and impact of such benefits is immense. Employment-based health benefits are the most common form of health insurance in the United States, covering nearly 59 percent of all nonelderly Americans in 2010 and about 69 percent of working adults.
Assets in employment-based defined benefit (pension) and defined contribution (401(k)-type) plans account for more than a third of all retirement assets held in the United States, and a significant percentage of assets held today in individual retirement accounts (IRAs) originated as a rollover account from an employer-sponsored program. Workers routinely rank their employment-based health coverage as the most important benefit they receive, followed by a retirement plan.
Since private-sector health benefits alone rank as the largest single “tax expenditure” in the federal budget, various proposals have been made to either reduce or even phase out the cost of that program to the government. Both for employers that sponsor these benefits—and the workers who receive them—the implications are enormous, the EBRI report points out.
“When you look at some of the recent proposals for reform, benefit plan tax incentives are an area of total and complete volatility, and neither employers nor workers can have any certainty of what lies ahead,” said EBRI president and CEO Dallas Salisbury in a statement.
Industry experts and researchers on those topics made several points at the policy forum.
• Retirement benefits are a tax deferral rather than an exclusion from income—meaning the federal government will eventually recoup the forgone revenue, they noted. This distinguishes retirement plan deferrals from other tax exclusions.
• A major difference between tax-expenditure estimates and revenue estimates for scoring tax reform is that the latter incorporates taxpayer behavior; whereas tax expenditure estimates do not.
• Ten percent or fewer of those ages 55–60 are making withdrawals from their IRAs, compared with 80 percent of those 71 and older.
• On a historical basis, depending on the period measured, pre-retiree balances in defined contribution retirement plans double about every eight to nine years.
• Employer match levels seemed to have a bigger impact on older workers, but automatic enrollment seems much more significant in terms of getting younger employees to participate in retirement plans.
The full report, which appears in the August 2012 EBRI Issue Brief, “’After’ Math: The Impact and Influence of Incentives on Benefit Policy,” is available online at www.ebri.org. Speaker presentations, a webcast recording of the event, and other information are online at EBRI’s Web site at http://bit.ly/EBRIpolicyforum0512.