401(k) Pre-Tax Deferrals: An Endangered Species? (Beltway Buzz - October 27, 2017)

 
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The Beltway Buzz is a weekly update summarizing labor and employment news from inside the Beltway and clarifying how what's happening in Washington, D.C. could impact your business.

D.C. is humming this week, as the Senate and House are both in session after taking turns on recess the past two weeks.

401(k) Pre-Tax Deferrals: An Endangered Species? After being overshadowed by ACA repeal-and-replace efforts for nine months, tax reform efforts are now well under way in the House and Senate to send a comprehensive package to President Trump by the end of this year. On Tuesday, sources confirmed that the House intends to introduce its version of a tax bill on November 1, which could be appended to the Senate budget reconciliation measure that the House passed on Thursday. Although details are still skimpy, rumors have been circulating about various revenue-raising proposals that might be included in the final package. Late last weekend, in particular, the financial planning community was stunned when the New York Times reported that Republicans are considering lowering the current 401(k) deferral limit from $18,000 per year ($24,000 for participants age 50 and older) to possibly as low as $2,400 annually. Any contributions made above the new limit would be required to be made on an after-tax, or Roth, basis. The sound and the fury evidently reached the White House, as the president declared in a tweet the very next morning that there would be "NO change to your 401(k) . . . it stays!" But then, on Wednesday, House Ways and Means Committee Chairman Kevin Brady bumped heads with the president by issuing a seemingly contradictory statement, indicating that the House measure could, in fact, force changes to 401(k) and other retirement plans. This could set the stage for a rough-and-tumble battle between Congress and the administration. Where so many different interest groups have stakes, and yet huge sums of money must be found to offset huge tax cuts, no otherwise unpopular option is off the table. The idea of "Rothization" has been around for a while, and it will not likely be banished by a single tweet. We will, of course, keep our sights focused on this issue in the coming days and weeks, as the retirement industry holds its breath. (Hat tip to Richard C. Libert, Stephanie A. Smithey, and Timothy G. Verrall.)

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