Democratic presidential nominee Joe Biden plans to upend the traditional tax preferences of retirement accounts like 401(k) plans could force some small companies to cut those benefits, industry experts warned Fox Business Network.
Biden has vowed to convert the current deductibility of traditional retirement contributions into matching refundable credits for 401(k)s, IRAs and others, Fox Business Network explained.
The goal of Biden’s plan is to level the playing field of tax deferral in traditional retirement accounts, with the intent of boosting saving among low-income earners. But industry experts cautioned that by reducing the benefits that higher earners receive, the Biden campaign may have increased the likelihood of businesses abandoning those retirement benefits altogether, Fox Business Network said.
“If you take the tax deduction away and reduce the tax benefit, without also addressing the nondiscrimination rules, you’ve blown up the bargain,” Brian Graff, the CEO of the American Retirement Association, told Fox Business Network.
That’s because employers who make contributions to a 401(k) must offer that same benefit to their workers, FBN said. Under Biden’s plan, business owners would have to reduce their own tax benefit, while continuing to contribute on behalf of their employees, which is expensive, particularly during a pandemic.
Some of those bosses — traditionally the higher-income earners — may lack the incentive to offer those retirement accounts if their tax benefit is slashed, Graff said.
“When you mess up that bargain, you’re disincentivizing those small business owners from having that plan anymore,” he said. “Not only is it unfair to those small business owners, it’s going to reduce the likelihood that they’re going to offer those benefits to their employees. And that’s particularly acute in a challenging time like now.”
“Tens of millions of people” could lose their plans as a result of the proposed change, Graff estimated. Small businesses, which would be the most affected by the new rules, employ roughly 58.9 million people, or 47.5% of the nation’s workforce.