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GOP Tax Reform Could Devastate Retirement Industry

March 22, 2017

The tax cuts proposed by the Republican-led Congress and the White House could have serious repercussions for the retirement industry, says an executive of a retirement-plan advisor association.

The tax reforms being mulled over on Capitol Hill could hurt retirement-plan advisors even more than the Department of Labor’s Conflict of Interest Rule, Brian Graff, executive director of the National Association of Plan Advisors, said at the group’s recent summit, according to InvestmentNews.

The proposed cuts for corporations and individuals would deprive government coffers of trillions of dollars, says Graff. Since the GOP’s proposal also aims for revenue-neutral tax legislation, meanwhile, that lost revenue may end up getting taken out of defined contribution plans, he said, according to InvestmentNews.

While cautioning that his remarks are nothing more than "rampant, educated speculation,” Graff said that one possibility is a freeze or even a reduction of limits on 401(k) contributions, the publication writes. He also suggested that the GOP may impose what in effect would be double taxation on retirement accounts of wealthier individuals, or do away with 403(b) and 457 plans, according to InvestmentNews.

A 403(b) plan is a a tax-sheltered annuity plan for employees of certain tax-exempt organizations, schools and ministries, while 457 plans are non-qualified tax advantaged deferred-compensation retirement plans available to some governmental and non-governmental employers.

Meanwhile, the GOPs revamp of Obamacare through the American Health Care Act may raise the attractiveness of health savings accounts relative to 401(k)s, according to Graff. No matter how the tax reform gets pushed through, he said, the retirement industry will not “get through this process unscathed," according to InvestmentNews’ account of his remarks.

Meanwhile, the DOL’s fiduciary rule remains a major concern, Graff said. While the rule already faces a possible delay and President Donald Trump’s administration may try to push it back even further, the rule isn’t going away, Graff said, according to InvestmentNews.

In particular, the provision that allows a private right of action — which exposes retirement advice providers to class-action suits rather than just Finra arbitration — is a “game-changer,” Graff said.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here if you have a paid subscription.