Americans (and Congress) Favor Encouraging Retirement Plan Participation...But Hesitant on Significant Tax Changes

A recent survey on "American Views on Defined Contribution Saving" by the Investment Company Institute suggests that more than 88% of participants in defined contribution plans (e.g.: 401(k) plans, 403(b) plans, etc.) appreciate the savings and investment opportunities offered by such plans and 74% are confident that such plans can help them meet their retirement goals.

In recognition of American's favorable view on retirement plan participation, Congress recently passed retirement plan legislation (SECURE Act 2.0) includes provisions that promote retirement plan participation, including:

1. Required automatic enrollment for new 401(k) and 403(b) plans, with deferrals at 3-10% of compensation and annual automatic escalation of deferrals by 1% each year up to 10-15% of compensation;
2. Expanded coverage to long-term part-time employees (now defined as someone who completes 500 hours of service in two consecutive years); and
3. Allowance of de minimis incentives to improve plan participation (e.g., gift cards)

Conversely, the vast majority of respondents in the ICI survey were hesitant to change or take away the tax-advantaged status afforded to 401(k) and 403(b) plan pre-tax deferrals. Early bills and iterations of SECURE Act 2.0 had included more bold changes to tax laws that ultimately were scrapped in the final law, including pushing more employee savings into non tax-deferred plan sources or IRAs (referred to as a "Rothification" of retirement plan savings). Although minor changes were made as a part of SECURE Act 2.0 requiring certain catch-up contributions to be made on a Roth basis, Congress has avoided going down the path to further Rothification... for now.