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Congress Told: Don't Mess With Tax Deferral


Don’t mess with tax deferral in retirement savings products. Do preserve tax deferral in annuities. Don’t take tax deferral for granted, and don’t take it away.

In view of expected budget changes coming up, retirement industry leaders are working to get those messages out to Congress, the industry and the public in different ways.

For instance, the Coalition to Protect Retirement just released survey results showing that, by a margin of four to one, Americans oppose any change in the current tax rules that provide incentives to save for retirement in plans such as 401(k)s, 403(b)s, and traditional IRAs.

The Washington-based coalition, which includes 10 national organizations with vested interests in retirement security, has also kicked off a campaign to heighten public awareness about tax deferral and proposals to curtail those retirement savings incentives.

Meanwhile, Jefferson National Life has an initiative of its own going on — to remind financial advisors about the value of tax deferral in annuity products.

The survey

The coalition survey uncovered strong opposition to the idea of making changes to retirement saving accounts, especially where one’s own retirement savings account is concerned.

For instance, 87 percent of surveyed Americans said that “my retirement savings should be ‘off limits’ to Congress and not a source of new revenue for the government.”Conducted in mid-October, the online research sampled views of 1,000 American adults, ages 18 and up.

Americans who currently have tax-deferred retirement saving plans were “particularly engaged and staunchly opposed” to such changes, according to the coalition. Ninety-five percent of those who have a plan said their plans should be “off limits.”

Coalition members include many top organizations in retirement circles. The list includes not only the American Council of Life Insurers and the Insured Retirement Institute, but also theAmerican Benefits Council, American Society of Pension Professionals and Actuaries, The ERISA Industry Committee, ESOP Association, Investment Company Institute, Plan Sponsor Council of America, Securities Industry and Financial Markets Association, and the Society for Human Resource Management.

The survey findings uncovered substantial political agreement around the idea of not changing the current tax treatment of retirement plans. For instance, 82 percent of Democrats, 88 percent of Independents, and 93 percent of Republicans said their retirement plan savings should be “off limits” to Congress.

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Furthermore, those who currently have tax-deferred retirement saving plans indicated they would use the ballot box to make their point. Specifically, 76 percent told researchers that they would be less likely to vote for their member of Congress in the next election if the member supported any changes to the tax incentives for retirement plan savings. More than two-thirds (68 percent) of the entire survey group said the same thing.

In a press conference, coalition leaders said their organization is designing the new national “education and advocacy campaign” to raise awareness about how current tax deferral rules are helping Americans prepare for their own retirement.

The campaign kickoff includes not only release of the new survey results but also the addition of a “Take Action” microsite to the coalition’s website(, Set up grassroots-style, this section includes links to developments in Congress and also a link to a page where visitors can send letters on the subject to elected officials.

The leaders did not identify any specific legislative proposal that the campaign is currently targeting. However, Ed Ferrigno, vice president-Washington affairs for the Plan Sponsor Council of America, did say that restrictions on the ability to save for retirement appear in several proposals.

The coalition’s survey findings are similar to results of an Investment Company Institute survey conducted a year ago. Among households owning defined contribution (DC) accounts or individual retirement accounts (IRAs), that earlier survey found that nearly 90 percent disagreed with the idea of eliminating or reducing the tax incentives in their plans.

About annuities

Separately, David Lau, chief operating officer of Jefferson National, said in an interview that his company has been championing the value of tax deferral in variable annuities for a long time and especially this past year.

Through marketing, seminars, webinars, emails and other mean, the Louisville, Ky., company has been reaching out to registered investment advisers and fee-based planners, urging them to take a look at how tax deferral in retirement products like annuities benefits the client, Lau told InsuranceNewsNet.

“The sunsetting of the Bush tax cuts after the end of 2012 helped draw attention to this.”

Before that, most fee-based advisors wouldn’t use a variable annuity for retirement planning, he recalled. “They said the products are too expensive and too complicated and most variable annuities do not have enough investment options to meet client needs.”

Now, that is changing. “Our variable annuity sales are up by roughly 75 percent over the last 12 months, and the number of advisors using our product has increased to 2200 from 1600 at the end of last year,” Lau said. “We’re expecting to end this year with $725 million in variable annuity premium volume compared to $400 million at year-end 2012.”

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The company does not pay commissions to, or run incentive programs for, advisors “so the growth in sales wasn’t due to a compensation program,” Lau said. Instead, the company thinks much of the growth has to do with the company’s focus on educating advisors about the value of tax deferral.

As may be expected, company also credits the structure of its product for the increase.

Most traditional variable annuities are commissioned products, and they are sold for the benefit of the retirement income they provide and the withdrawals the client can make, he said. The tax deferral is another benefit of the product, but the sale is not based on tax deferral. As for subaccounts, the traditional variable annuity averages about 40, he said, although some products offer more.

By comparison, Jefferson National sells its product strictly for the benefits of tax deferral. The customer pays $20 a month for the policy that offers nearly 400 subaccounts. The absence of commissions and wholesaling costs means the product is less expensive than traditional contracts, Lau said. “That helps increase the power of the tax deferral.”

If tax rates go up--say, for ordinary income or short-term capital gains — the benefit of tax deferral will become even more important for clients, he predicted

That is what is catching the advisor’s attention, he said.

“It’s more important than ever for advisors to understand the power of tax-deferral,” he contended.

, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at [email protected].


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