By: Russ Kamp, Managing Director, Ryan ALM, Inc.

I have a great appreciation for the research produced by the Center for Retirement Research (CCR) at Boston College and I’ve admired Alicia Munnell for years, but I have to say that I am absolutely opposed to her latest research that she produced with Andrew Biggs. They are proposing the elimination of the tax deferral for contributions into defined contribution plans, stating that the deferral doesn’t really matter. That “the percentage of workers age 25 to 65 participating in employer-sponsored retirement plans has remained stubbornly at roughly 50% since 1989” (P&I). Furthermore, they claim that those contributing tend to be high earners that don’t care about the deferral. Munnell and Biggs would rather see the lost tax revenue from these contributions be used to prop up Social Security claiming that action would be fairer to lower income earners.

Unfortunately, we’ve had defined benefit plans in the private sector go by the way of the dinosaur and now they want to eliminate the tax benefit for contributions into DC plans. Many, if not most Americans, especially Millennials and younger cohorts, are struggling to meet daily needs. You want to know why participation in employer-sponsored plans has remained around 50%, these younger workers are burdened with student loan debts, exorbitant housing costs, monthly child care expenses that rival a mortgage payment, ever increasing healthcare insurance costs, let alone food, energy, clothing, etc. Oh, and regrettably, contributions to a retirement account that were once made by one’s employer are now also on their plate.

You want to help Social Security? Eliminate the annual cap on the amount of compensation that gets taxed for SS purposes. For 2024, the amount of compensation that will be taxed for SS purposes is $168.6K. Why? Lower income Americans will pay 100% of the tax applied to their SS bill. Why should wealthy Americans not pay an equal percentage? Those earning < $168.6K will pay 6.2% toward SS. Those earning more than that amount will pay less on a percentage basis. Make $300,000? Your SS tax rate is 3.48%. How is that fair?

I think that the participation in employer-sponsored defined contribution plans has remained stubbornly at 50%, not because the tax-deferral isn’t enticing, but because the average American worker is stretched! They don’t have the financial means! Take away the tax deferral and let’s see how stubborn that 50% level really is. I’d hate to think of the potential impact of that level falling to 40% or less on our American worker’s retirement readiness. As a retirement industry we should be doing everything that we can to encourage the use of DB and DC plans. We should NOT try to find ways to further harm these programs, which eliminating the tax-deferral would in my humble opinion.

Finally, the US enjoys the benefits of a fiat currency. We will always be able to pay our debts as long as those debts remain in US $s, including SS, which they are! Eliminate the ceiling for the SS tax and you’ll go a long way to securing SS without screwing up DC plans.