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Jerry Geisel

Deficit-cutting efforts may target defined contribution plan maximum

November 7, 2012 - 3:33pm

Deficit Cuts Defined Contribution Plans


Maximum retirement plan contributions especially those made to defined contribution plans, could be in congressional crosshairs as a result of Tuesday's elections, experts say.

As lawmakers consider ways to reduce the federal government's massive budget deficit, one proposal likely to come up is reducing the maximum allowed contributions to defined contribution plans.

Such proposals, especially those aimed at high-income plan participants, “are a real possibility,” Rick Jones, a managing partner at Aon Hewitt in Lincolnshire, Ill., said Wednesday.

If so, that wouldn't be the first time. As part of a broader tax reform measure passed in 1986, lawmakers slashed the maximum contributions employees could make to 401(k) plans to compensate for lower basic tax rates. However, lawmakers boosted contribution limits in 2001 at a time of budget surpluses. In 2013, the maximum contribution will be $17,500, up from $17,000 this year. In addition, employees age 50 and older will be able to make an additional $5,500 contribution, unchanged from this year's maximum.

On the other hand, President Obama's re-election could help accelerate long-awaited final Treasury Department rules on acceptable approaches that employers can take to credit interest to employees' cash balance pension plan accounts.

Had President Obama been defeated, some top Treasury Department regulators likely would have departed.

“There may now be less disruption” that could have slowed the release of those rules, said Alan Glickstein, a senior Towers Watson & Co. retirement consultant in Dallas.