The Joint Committee on Taxation has projected that defined contribution plans will lead to a $1.4 trillion loss in federal tax revenue over the next decade, a figure that is expected to be central in upcoming tax policy discussions. However, industry advocates, including the American Retirement Association, argue that this analysis is misleading. They contend that the cash flow approach used by the JCT overstates the long-term revenue impact of tax benefits like retirement plan tax deferrals. Proponents favor a net present value model, asserting that it better reflects the true costs of these tax expenditures, as retirement plans are designed for long-term savings and tax recoupment occurs over many years. They criticize the JCT's methodology as failing to accurately assess the value of tax benefits over the necessary time frame for retirement savings.
As the new year begins, industry experts are sharing predictions for the retirement sector, with a key trend being the rise of in-plan retirement income solutions. The Institutional Retirement Income Council expects a significant wave of innovation and adoption of these solutions by 2025, driven by growing interest from plan sponsors, providers, and participants. Additionally, a report from Mercer highlights that retirees face challenges in managing their savings throughout retirement, particularly in dealing with unexpected financial issues and sustainable spending. The IRIC also identified a few additional trends it believes will have a significant impact on retirement plans and participants in 2025.
Rep. Virginia Foxx has called for an investigation into the DOL's use of common interest agreements (CIAs) to share information from its investigations with plaintiffs in ERISA-related litigation. However, many ERISA attorneys, including those from both sides of the legal spectrum, expressed unfamiliarity with this practice and the associated statute. Alex Ryan, a partner at Willkie Farr & Gallagher, stated he learned about CIAs only through recent reports and noted that speculation existed about their use. Jerry Schlichter, a prominent attorney, confirmed that his firm has never utilized CIAs with the DOL and generated information independently. Similarly, Nate Ingraham from Thompson Hine also reported a lack of awareness regarding the DOL's use of these agreements. Overall, the responses suggest that CIAs may not be a widespread practice within the DOL.
In this opinion piece, the author discusses the significant tax deferral associated with 401k plans and other defined contribution plans, likening the pursuit of tax advantages to Willie Sutton's rationale for robbing banks. It highlights that this tax deferral is estimated to cost the U.S. Treasury between $185 billion to $200 billion annually. Critics argue this subsidy mainly benefits the wealthy and does not effectively increase overall retirement savings, suggesting that the lost revenue could be better utilized, particularly to bolster the Social Security trust fund, which is projected to face shortfalls by 2034. However, the author contends that taxing 401k plans to support Social Security would severely undermine workers' retirement savings and asserts that the tax deferral likely does not result in significant revenue losses for the federal government.
The Government Accountability Office released a report supporting the DOL's Fiduciary rule, claiming that investors could lose significant sums by buying mutual funds through brokers, particularly highlighting that bundled funds (those compensating brokers) yield lower gross returns compared to unbundled funds. The Investment Company Institute expressed doubt about the GAO's findings, suggesting that performance differences are negligible and unrelated to the compensation structure. Further investigation using standard financial models confirmed this, indicating no significant difference in gross risk-adjusted returns between bundled and unbundled funds, thus disputing the claim that investors face substantial financial risks when purchasing mutual funds through brokers.
The retirement plan landscape is expected to undergo significant changes due to legislative shifts, economic conditions, and trends in plan design and participant engagement. In 2024, with stabilized economic conditions and the Federal Reserve cutting interest rates, retirement plan sponsors are focused on enhancing participant experiences and outcomes. Existing trends are accelerating while new ones are emerging. As 2025 approaches, employers will need to remain adaptable to navigate changes in investment options, regulatory adjustments, and evolving employee needs. CAPTRUST leaders provide insights and predictions for these upcoming developments.
The article discusses the ongoing tension between legitimate excessive fee class actions against plan sponsors and fiduciaries and the high costs associated with defending such claims, particularly when they are deemed to have little merit. The author proposes a balanced approach: while encouraging plan sponsors and fiduciary liability insurers to take cases to trial, there is an alternative strategy that could be less costly in the short term. This strategy involves implementing a thoughtful litigation campaign that raises barriers to lawsuits and reduces costs for those that proceed. Additionally, the author suggests treating class action ERISA litigation as a commoditized type of litigation, allowing for more efficient and cost-effective handling of these cases.
The IRS announced in Announcement 2025-02 that certain future regulations regarding required minimum distributions will take effect in the 2026 distribution calendar year. This follows concerns raised by commenters about the proposed regulations amending specific Treasury regulations. Until these amendments are applicable, the IRS advises that taxpayers should apply a reasonable, good-faith interpretation of the existing statutory provisions.
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Collected Wisdom™
Our researchers look for what they think are some of the better resources available to assist you in administering your plan or helping your clients. We group these resources in our COLLECTED WISDOM™ topics to make it easy for you to locate the information you need. Each item in a category contains a summary and date of when it was placed in the group.
We also maintain some older material in these collections for perspective and context.
