Putnam CEO: leave 401(k) cash alone

Sept. 19--Republicans pushing tax reform should keep their hands off the cash that workers set aside for their retirement, says Putnam Investments CEO Robert Reynolds, who is 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 was released yesterday. "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, because 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" -- paying taxes upfront so withdrawals are made tax-free during retirement -- is now part of a "serious discussion" in Washington, Reynolds said. He 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."

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

Reynolds, however, said 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."

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