Putnam CEO Bob Reynolds Warns GOP: Don’t Mess With 401(k)s

Sept. 18--Tax reform-hungry Republicans should keep their hands off the cash workers set aside for their retirement, says Putnam Investments CEO Robert Reynolds, who actively lobbying Congress as it prepares to address President Trump's top legislative priority for the fall.

"We've been to every congressman, senator, everyone in the administration, everyone we can talk to," said Reynolds, a top Massachusetts Republican donor. "We talk about (how retirement savings) is not a tax expenditure, it's a tax deferral. It should be treated as such."

Reynolds warned that retirement investments are viewed as "low-hanging fruit" in Washington, where Republicans have floated several revenue-generating options to cover a raft of tax cuts and proposals, among them taxing the money Americans designate for retirement before it goes into their 401(k) plans, instead of when they withdraw it.

"We think that's a huge mistake," Reynolds told reporters last week as he promoted his first book, "From Here to Security," an analysis of America's retirement savings plans that is being released today. "You're trying to balance a national problem on the backs of individuals, because retirement savings is so important to everyone in America."

The pretax option for 401(k) investments has long been regarded as an attractive feature, since investors are typically in a lower tax bracket when they withdraw their savings at retirement. The feature has been a major boon to the 401(k) industry, which handles the accounts of more than 50 million Americans.

But the idea of "Rothification" -- as in paying taxes upfront so withdrawals are made tax-free during retirement -- is now part of a "serious discussion" in Washington, Reynolds said.

So serious, he said, Reynolds and his co-authors scrambled to add a last-minute chapter to his book addressing potential tax reform.

"It would have a dramatic impact on contributions," Reynolds said of changing the tax structure. "That's why we've been heavily engaged in Washington to dissuade them of that or have pretax up to a certain level and above that is Roth. You encourage as many people to save as possible. (That), to me, should be the goal of the system."

The concept of Rothification has been pitched as a revenue-raising scheme that could allow Congress to cut the corporate tax rate, which currently stands at 35 percent. President Donald Trump has pushed to slash it to as low as 15 percent, but his Treasury Secretary Steven Mnuchin has said that might not be possible.

Reynolds, however, says he thinks 20 percent is attainable -- in the right reform package.

"It has to be comprehensive tax reform to get something that major," Reynolds said. But, he added, "If you really want it to have a positive effect on how U.S. companies act, I think it has to be a meaningful number."

In "From Here to Security: How Workplace Savings Can Keep America's Promise," Reynolds emphasizes the goal of American workers devoting at least 10 percent of their earnings to retirement, and frames the retirement savings system as an economic "growth engine."

Among the reforms he pitches is automatic enrollment in a retirement plan, likening it to the rolling enrollment companies use for health care.

"To make the plan available to everyone at the workplace is a step we need to make as a country in total coverage," he said.

Reynolds, who is president and chief executive officer of both Putnam Investments and Great-West Financial, which owns Empower Retirement, America's second largest provider of retirement services with more than 8 million participants, acknowledges his proposals would benefits the firms he leads. But he said his motivation for the book was to create a system "that works." Officials at Putnam said all proceeds from book sales will be donated to as-yet-identified charities.

"I think it greatly benefits working America," Reynolds said. "I don't care what business you're in. If more people were saving more and the dignity of retirement was part of the country's fiber, which I hope it is, this allows that. I can see where people (say), 'This is self serving.' But this is what America needs."

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