Employers will be less willing to provide 401(k) retirement plans if Congress reduces their current tax treatment, according to a survey of 516 companies by the American Benefits Institute, the educational research arm of the American Benefits Council.
The survey, conducted by Mathew Greenwald & Associates and released Dec. 11, asked employers about specific tax proposals that could come up during fiscal cliff negotiations, including a "20-20" proposal to limit contributions to $20,000 or 20 percent of compensation; a refundable tax credit instead of the current tax exclusion; and a proposal to limit the tax exclusion for workers in the 35 percent tax bracket to 28 percent.
Almost half of employers, 46 percent, said they would consider dropping their plans under the 28 percent tax credit scenario, while one-third would do so in the event of a limited tax exclusion or under the 20-20 proposal.
Employers with 1,000 or more workers were more likely to consider cutting benefits or dropping plans altogether, the survey found.
The survey also showed 91 percent of employers believe the current tax exclusion for 401(k) plan contributions is important to their workers' decision to contribute to the plan and 72 percent say that workers contribute more because of it.
Among the respondents, 84 percent of employers found workplace-based 401(k) plans valuable. "Employers believe that they provide real value in attracting and retaining employees," said Mathew Greenwald, president and CEO at the eponymous firm, on a conference call.
"As part of a deal to avoid the fiscal cliff, or in the context of broader deficit reduction next year, the current tax-deferred treatment 401(k) contributions could be changed to generate short-term federal revenue," said James A. Klein, ABC president, during the call. "This survey demonstrates that it would be shortsighted and ill-advised for Congress and the president to do so."
"Not all tax expenditures are created equal," Klein said.
Hazel Bradford writes for Pensions & Investments, a sister publication of Workforce Management. Comment below or email editors@workforce.com.
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