Plan sponsors are overwhelmingly against a tax reform package that would eliminate or reduce thetax-preferential treatment of defined-contribution retirementplans.

In a survey conducted by the Plan Sponsor Council of America, anonprofit trade group that represents the interests of employersponsors of workplace retirement plans, nearly 95% of the 443sponsors who responded strongly or somewhat agree that eliminatingor reducing pre-tax contributions to 401(k) plans would be a “bad idea.”

Early vows by the Trump administration to make tax reform a toppriority have led to speculation that the tax treatment of workplace retirement and health care plans arenegotiable as a way to pay for significant reductions in individualand corporate tax rates.

Over the past several months, proposals that would partially orcompletely transition the country's defined contribution system toan after-tax, or Roth-style, system have circulated on CapitolHill. The Trump administration and the Republican Caucus in theHouse of Representatives have been cryptic about whether the taxtreatment of defined contribution plans will be in play ascomprehensive tax reform is undertaken.

The non-partisan Joint Committee on Taxation's most recent datashows the tax-preferred treatment of defined contribution planswill cost $583.6 billion in so-called foregone revenue between 2016and 2020. Traditional IRAs will cost $85.8 billion. The JTCprovides Congress research on the tax code.

Critics of proposals to use existing retirement plan taxincentives to pay for tax cuts argue they would have a negativeimpact on employee savings rates. They also claim some plansponsors would be incentivized to stop offering retirementplans.

PSCA's survey, which included input from sponsors of micro- tomega-plans, shows that employers overwhelmingly agree that changingthe existing tax incentives would slow deferral rates.

Almost 94% strongly agree or somewhat agree that employees wouldbe discouraged from saving if the tax incentive to do so waseliminated or reduced.

Most sponsors said they would continue to offer plans if theexisting tax-structure were changed.

Asked if they would continue to offer plans if the existinglimits on pre-tax contributions were reduced, more than 85% ofrespondents said they would definitely or likely continuesponsoring plans. But that number drops to 70% under a hypotheticalall-Roth system.

Sponsors of micro-plans were the most likely to rethink offeringa savings vehicle if pre-tax contribution rates were reduced: 16%said they might continue sponsoring a plan; almost 6% said theywould be unlikely to continue sponsoring a plan; and nearly 3% saidthey would definitely terminate their plan if pre-tax contributionlimits were reduced.

The consequences become more grave under the proposal to shiftall contributions to an after-tax basis: 16% of all plans said theymight consider dropping their plan, with 22% of micro-plans and13.5% of plans with more than 1,000 participants claiming theywould be on the fence.

More than 5% of all plans said they would be unlikely tocontinue sponsoring a plan under an all-Roth requirement; and 4.4%of micro-plan sponsors said they would definitely terminate theirplans.

“Plan sponsors are very concerned about the potential impact oftax reform on their employees' retirement savings,” JackTowarnicky, PSCA's executive director, said in a statement. “Theseproposals could impact the more than 100 million Americans whoparticipate in tax-qualified retirement savings plans.”

Three-fourths of respondents to the survey already offer a Rothoption. Nearly nine in 10 plans with more than 5,000 participantsdo not offer a Roth option.

Among plans that do offer after-tax contributions, 30% ofsponsors said the option is utilized by 10% to 20% ofparticipants.

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