Most households think tax incentives for retirement plans should remain national priority, ICI reports

A recent study by the Investment Company Institute (ICI) found that most U.S. households believe lawmakers should maintain current tax incentives for retirement savings. According to the ICI study, America’s Commitment to Retirement Security: Investor Attitudes and Actions, 2013, about 80% of surveyed households agreed that retirement savings incentives should continue to be a national priority—whether they were invested in a retirement account or not.

Though stresses on the U.S. government budget have resulted in a reexamination of national priorities with respect to taxes and government spending, the vast majority (85%) of the 4,000 households surveyed from November 2012 through January 2013 disagreed with a suggestion to remove the tax incentives for defined contribution (DC) plan retirement savings. Opposition to elimination of the tax advantages was the strongest among households with such accounts, with 89% opposing the removal of the tax advantages. However, 81% of the households without these accounts still opposed eliminating the tax incentives. There also was widespread disapproval of reducing contribution limits.

“The survey research demonstrates Americans’ tremendous commitment to retirement savings,” said ICI President and CEO Paul Schott Stevens. “Policymakers should take heed that U.S. households value the features of 401(k) plans, and that 401(k) savers appreciate the tax deferral these plans offer. As we anticipate budget reforms that will ask Americans to do more for themselves, lawmakers should make it a priority to preserve retirement plan tools that are working to help Americans prepare for retirement.”

Strong confidence in DC plans

The ICI survey shows that one factor behind the strong attitudes of U.S. households favoring the preservation of retirement savings incentives is the fact that households—whether or not they had a DC plan account—were generally confident in these plans’ ability to help individuals meet their retirement goals. The survey also reveals the role DC plans play in long-term financial planning. About 9 out of 10 surveyed households said that these plans help them to think about the long term and make it easier to save for retirement.

The survey also found that more than three-fifths (63%) of households have favorable impressions of the 401(k) and similar plan accounts. Most households’ impressions were shaped by the ability of these accounts to accumulate significant savings, the performance of retirement plan account investments, and personal experience with such plans.

Responses to the ICI survey further indicated that respondents appreciate the key investment features of DC plans. A strong majority (84%) indicated that their DC plan offered a good lineup of investment options. In addition, 96% indicated it is important to have choice in and control of the investments in their retirement plan accounts.

Other findings

In addition to the annual household survey of attitudes towards retirement savings, the ICI study includes data from plan recordkeepers on contributions, asset allocation, and withdrawal and loan activity in more than 24 million employer-sponsored DC plan participant accounts in the first nine months of 2012.

According to the survey, fewer than one in five DC plan participants had loans outstanding at the end of September 2012, similar to year-end 2011. At the end of September 2012, 18.3% of participants had loans outstanding, compared with 18.5% of participants at year-end 2011. DC plan participants tended to stay the course with their asset allocations. Only 9% of the participants changed the asset allocation of their account balances during the first three quarters of 2012, compared with 9.4% during the first three quarters of 2011. In addition, 6.5% of the participants changed the asset allocation of their contributions between January 2012 and September 2012, down from 8.4% during the first three quarters of 2011.

Source: ICI news release, February 7, 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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