Don’t Let Congress Throw Your 401(k) off the Fiscal Cliff

Congress is wrestling with year-end budget issues and trying to reduce the trillion dollar deficit with a series of tax hikes and spending cuts. While nothing has yet been agreed to, some proposals that have been made involve reducing retirement plan deductions, possibly by as much as 60%.

Over 60 million Americans participate in a 401(k) plan or some other form of employer sponsored retirement plan. Even with employer plans, many Americans place only 3% of their earnings into 401(k) plans, although most experts recommend saving 10% or more. While many individuals are not saving as much as they should, their retirement plans represent more than 65% of their entire financial assets. For most individuals,the employer programs provide the incentive and discipline they need to save for retirement. Without these employer plans, most Americans would not save for retirement.

There is concern about the current crisis that changes being considered by Congress would not only reduce the amount that employees could save, but also make retirement plans less attractive for employers. This is exactly what happened, when tax code changes were enacted by Congress in 1986; contributions were cut by more than 70% and many plans offered by employers were terminated.

While Congress needs to consider eliminating or reducing various tax incentives, our elected officials need to recognize that 401(k) deductions are different from other deductions. For example, if you deduct mortgage interest from your income, Uncle Sam loses tax revenue. With 401(k)s, tax is only postponed; the government will tax those funds, when they are withdrawn, normally at retirement.

A web site – – has been created to bring attention to the current threat to retirement savings plans. The site explains the threat and helps individuals contact their representatives in Congress to tell them to keep their “Hands Off My 401k”. A message has already been written that savers can use, and the site helps individuals to direct the message to the appropriate representatives. The site provides guidance in the proper procedure for writing and telephoning elected officials. There is also a media guide that lists local newspapers, magazines, and other media that can be contacted.

FMi Vice President, Peter Macaluso, encourages investors to contact their representatives to tell them not to tamper with 401(k)s. “Congress must resolve the current fiscal crisis with a combination of spending cuts and revenue increases. Congress should not, however, accomplish this at the expense of individual retirement plans. Instead of making it harder for individuals to save for retirement, our elected officials should be encouraging savings, especially when these same officials are threatening significant reductions to government sponsored social programs like Social Security and Medicare.”

More information is available through your FMi representative and at


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