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Congressman Dave Camp (R-MI), Chairman of the Committee on Ways and Means, today announced that the Committee will hold a hearing on possible reforms to certain tax-favored retirement savings plans that might be considered as part of comprehensive tax reform. This tax reform hearing – scheduled to occur on tax filing day – will examine one source of complexity for individuals and employers by reviewing employer-sponsored defined contribution plans as well as Individual Retirement Accounts (“IRAs”). The hearing will take place on Tuesday, April 17, 2012, in Room 1100 of the Longworth House Office Building, beginning at 10:00 A.M.
In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. A list of invited witnesses will follow.
Financial planners and advisors have long identified the major components of retirement security as Social Security, employer-sponsored plans, and personal savings. Financed by payroll taxes paid by covered workers and their employers, Social Security provides monthly cash benefits to retired or disabled workers and their family members and to the family members of deceased workers. Social Security is outside the scope of this hearing.
Outside of Social Security, many employers offer employees the option of participating in employer-sponsored retirement and pension plans, which generally receive favorable federal income tax treatment. Employer-sponsored plans provide for either a defined benefit (which generally provides retired employees with an annuity) or a defined contribution (“DC”). Defined benefit pension plans represent an important source of retirement security, but raise policy questions that are outside the scope of this hearing. DC plans receive contributions from either employees or employers or both. Employees usually own their own accounts, and control the investment of account assets, thus bearing the risks and rewards of asset performance. In general, contributions to DC plans are deductible to the employer, excluded from the employee’s income, grow tax-free, and are taxed upon distribution. DC plans also generally may offer Roth-style accounts; contributions to such accounts are made on an after-tax basis but earnings and distributions are tax-free.
Individuals also may be eligible to save through IRAs, which are similarly tax-advantaged, although with much lower contribution limits. Traditional IRAs are taxed similarly to 401(k) accounts. Contributions are deductible from income, earnings are not taxed currently, and distributions are taxed. Individuals participating in employer-sponsored plans cannot contribute to a traditional IRA if they exceed certain income levels. Contributions to Roth IRAs, on the other hand, are made on an after-tax basis, but earnings and distributions are excluded from income. Contributions to non-deductible IRAs are included in income, grow tax-free and are taxed at distribution less the amount of previously taxed contributions.
There are several types of DC plans, the most common of which are: 401(k) plans for private employers, 403(b) plans for non-profits and public schools, and 457(b) plans for State and local governments. In addition to the types of IRAs discussed above, some employers may offer IRAs through the workplace, including payroll deduction IRAs, SIMPLE IRAs and SEP IRAs. The proliferation of tax-favored retirement accounts has occurred as specific needs have led Congress to create new types of plans with specific rules. Some commentators, however, have questioned whether the large number of plans with different rules and eligibility criteria leads to confusion, reducing the effectiveness of the incentives in increasing retirement savings. In addition, many commentators have offered ideas for increasing participation in retirement plans and better targeting the incentives. These ideas range from simplification and consolidation of existing plans and accounts to changing the default rules governing whether an employee participates to additional incentives such as the Savers Credit.
In announcing this hearing, Chairman Camp said, “Retirement security is one of the most important long-term policy priorities we face as a Nation. While many argue that the existing menu of tax-favored retirement plans provides choice and flexibility for families and employers alike, others have questioned whether the ad hoc development of retirement savings incentives has led to undue complexity and inefficiency that reduce the effectiveness of these incentives. The general principles of tax reform apply to retirement security as well: American families trying to save should have options that are simple, fair, and economically efficient.”
FOCUS OF THE HEARING:
The hearing will consider the current menu of options for retirement savings – both with respect to employer-based defined contribution plans and with respect to IRAs. The hearing will explore whether, as part of comprehensive tax reform, various reform options could achieve the three goals of simplification, efficiency, and increasing retirement and financial security for American families.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing record must follow the appropriate link on the hearing page of the Committee website and complete the informational forms. From the Committee homepage, http://waysandmeans.house.gov, select “Hearings.” Select the hearing for which you would like to submit, and click on the link entitled, “Click here to provide a submission for the record.” Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance with the formatting requirements listed below, by the close of business on Tuesday, May 1, 2012. Finally, please note that due to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225-3625 or (202) 225-2610.
The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, but we reserve the right to format it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response to a request for written comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
1. All submissions and supplementary materials must be provided in Word format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official hearing record.
2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.
3. All submissions must include a list of all clients, persons and/or organizations on whose behalf the witness appears. A supplemental sheet must accompany each submission listing the name, company, address, telephone, and fax numbers of each witness.
The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.
Note: All Committee advisories and news releases are available on the World Wide Web at http://www.waysandmeans.house.gov/.