8 5Ii 21 2 Mr. Chairman, I am pleased to submit this statement I0 312 4218 on tax 14 19 22 23 17 9 Mr. Chairman, I am pleased to submit this statement 13 15 16on tax incentives 6 20 incentives for pensions and flexible benefits programs. Tax provisions TABLE 3 T-30 Table of Contents D.C.: EBRI, forthcoming). For a widelranging discussion of theoretical and go still higher-paid capital verning overstates financing pensions persons. the needs and revenue Theareflexible longer-term emerging costs TABLE ofcompensation throughout prepercussions ensi 1 on-related the plans could economy, taxhapolicy. vbe e the much figured fact Taxpayers broader, that contain deductions benefit for homecostmortggrowth age interest, suggests charitable that these deductions, plans can statehave and local provide not retirement theCafeteria only a priv income. factor. ateplans, source IfEmployee as public of theyretirement compensation policy are also continues security. called, also to depends have encourage Thegrown tax on income treatment considerably increased growth, accorded pension since become for particular welfare, more pensions than In Recent the and general, 40 requires sole "fringe" tax-reform percent andguarantor basic flexible a benefits, oflong debates tax theof term reform benefits labor post-retirement however, have commitment TABLE proposals force centered programs. would 5reported from would around noliving longer both Tax nolower the savings standards the provisions be comprehensive marginal tax employer income deductible across tax governing and inincome rates 1983 the the as share of total compensation. This would mean that a constant share of total The distribution of pension-related tax benefits among income groups prominently in Congressional debates over the last three tax bills. practical issues in basic tax reform, see U.S. Department of the Treasury, important macroeconomic effects by stabilizing benefit growth and labor Net Lifetime Pension-Related 8 Tax Benefit Shares Z costs. have pension however. Blueprints access funds Asfor tomany provide many Basic asother 20 Tax long-term tax-favored percent Reform capital of(Washington, younger investment givespension them vehicles D.C.: an participants Gothat important vernment couldcould Printing role be used be in TABLE 2 more employer they coverage pensions property recently werecost and and and first benefit considerations, developed income flexible authorized. levels, taxes, retirement compensation the and and In employer pension asome and recent plans capital medical system and variation employee have accumulation could and of figured business reduce preferences. thesevehicles the prominently plans, expenses. pressure such aboutfor All as ina income employee an tax (table employer andspectrum. 4). if theit compensation This consumption is togroup's deliver expense. tax. average a meaningful The Employees income basicretirement was premise would $9,651, not behind benefit. bejusttaxed theunder Employers comprehensive on the half value will the compensation and expand the wouldincome be received tax base. in a taxable Basic tax form. reformStabilizing proposals labor offercosts, ways in to reflects the distribution of coverage and participation. The largest share of Among Employees Aged 25 to 34 Office, 1977). Trends What Does in Pension Employee Policy Benefits Cost? I What for economic Does retirement policy. Pensionsaving How Policy Much in Cost? of place Pension-Related of employer pensions. Tax DeferralsIn is the absence 3 of tax Recent directlyLegislative affected, Actions and many and Prospects more could For the be Future affected indirectly by the eCongressional third individual employer ver-increasing contain contributions retirement debates reimbursement Social over Security accounts for the benefits accounts last benefits. (IRAs), three other or tax simplified flexible thanbills. pensions spending In employee my would statement accounts pension be included today, (FSAs). plans in I What Flexible restructure--not not of average income employer make Doestax income Compensation this Pension is contributions commitment of that lower- Policy thosePlans individuals the reporting Cost? iffor nation's theynonpension expect should sometaxasset the bill. bebenefits taxed terms income. Moston onsince proposals which Some the value the 55 it million do is employer of delivered notwhat envision workers, would they to turn, can contribute to reduced production costs throughout the economy. lifetime Employer pension-related Contributions tax andbenefits Treasury accrues Department to middle-income Tax Expenditureemployees. Estimates In Lifetime Tax Lifetime Pension Tax expenditures are commonly used in public policy debates as a Who Receives Employee Benefits? 5 9 This argument is advanced in Robert E. Hall and Alvin Rabushka, Low Tax, II Pension Shares by BenefitTax Shares What measure DoesofSociety the social Get incost Return? of federal pension policy. There is wide 9 provisions adjustments Simple Increased Tax, favoring plan Flat Retirement Tax sponsors pensions, (New York: could Income. taxpayers McGraw-Hill be forced TABLE The would avto 4ailability Company, make. probably1983), ofmake a pension p.more 90. use often of these means will address Employee thebenefits followingissues questions: have played a major role in recent tax Alternati FSAs (SEPs), the employee's allow Taxve section expenditures employees Waystaxable 401(k) to Accomplish toare income. plans, paycommonly Lost for the and The unreimbursed toGoals qualified used Section the Treasury? of in Pension public _15 voluntary medical limits policy Policy expenses on employee debates pensionand contributions as benefits some a measure other and change widespread already produce, including Thehave with as labor almost Distribution tax represented paid every fcuts, ohalf rce tax change on is of but ofbythese cEmployees the hanging income. would ingroup contributions. theinstead rwith ap _eporting Aid political comprehensive ly. Pension change Cen little Since sand us andthe Health dtax or acash budgetary tadistribution no attempts show compensation Cosavings verage that environment. toincome otax ver ofwould both the tax on Recent 1979, LeKislative 34 percent Actions of emploand yees Prospects aged 25Fortothe34Future earned between $20,000 and for Selected Voluntary Benefits _/ All Persons SUMMARY Participants OF Income Class c by Income Class disagreem Increased ent, howe savvings er about the proper way to measure these costs and 9 policy debates. For example, in the Tax Reform Act of 1984, the Income a (Percent) (Percent) b (Percent) (Percent) vehicles. Increased This retirement would increase income the revenue loss attributable II to these about who benefits from the incentives provided in these provisions. I0 contributions Actual These proposals, re would venuebe gained made therefore, muchfrom more would removing restrictive change tax the tharelative preferences n under current attractiveness for law. employee of Congress the difference made significant between subsistence changes inand at the leastability sixteentoareas maintain of employee pre-retirement of benefits (QVECs) theoSome What soci indicates with ahave lispre-tax cost the suggested continued revenue ofdollars. federal cost that Congressional pension of Such the pensions accounts goals policy. interest and ofare flexible employer The used in Treasury to benefits increasing pensions cushion estim plans? athe tes should voluntary impact that be last Therefore, continue liability the actual CPS, decade, and were to among Mr. be imputed the covered Chairman, aindividuals. proportion tax-deductible income. by employer we ofask This Comprehensive singleadult that cost by pensions would Earnings the of be doing Congress in households done income 1983. business by recognize expanding tax Pensions with proposals to children the how thus theemployer, much tax constituted include incbase reased it has the to in Employee benefits issues (inhave billions playedof adollars) major role in recent tax policy $50,000. These employees will receive 53 percent of the group's Statement on Alternative Measured using Ways to theAccTreasury's omplish theapproach, Goals of Pension about Policy $0.83 out of every 12 benefits. benefits would The be importance lower because of employee tax rates benefits would be in lower tax policy and because promisesemployers alternative investments. tax-deferred Flexible and employees o Who Compensation receives dollar would change appears these Plans tax their to benefits? bebehavior lost tototheavoid Treasury. taxes. Such estimates 13 to cashcontinue and benefits as the asCongress forms oftries compensation. to deal with Theyprojected would also Taxes federal change the individual accomplished living standards retirement using in retirement. savings. other policyRecent approaches. EBRI research Two projects of the that alternatives over the pension-rel of taxable a change Senaincome ated tor inMark not tax the Savonly Hatfield ings, employer's provisions cash Pensi (R-OR) wages onhealth costCobut verage, hthe asinsurance also also federal and all introduced Income, plan other government that items 1983 a might comprehensive over of value otherwise $50 received billion taxbe by already eliminate employer a net one-third. increase achieved would many presumably tax in Over insavings preferences safeguarding halfhafor ve of an these minathe rried incenti current economic workers. vwomen e law, to security are offer Assessments including now moreofinco those the mof the pensation American pension-related governing labor in for worker cash cthe e. debates. For example, in the Tax Reform Act of 1984, the Congress made pension-related tax benefits (table 3). Those employees age 25 to 34 who A $20,000 or less 61 53 42 24 Tax Incentives for Pensions and Flexible Compensation Plans oRecent verstate Legislative the amount Actions of reavnd enue Prospects lost due FortothesuFuture ch provisions, however. 15 Mdeficits. ethod Used Both the Congress and the Administration Taxes Lost have Deexpressed ferred 9 Statement on Comprehensive Because today's Income pension-plan Tax participants will have higher retirement 17 relative considerable II SeeTaxRetirement attracti expenditure interest veness Security in statistics basic of and various reform TaxarePolicy, benefits. of also themisleading Chapter personal In VII. general, income becausetax. tax theypolicy imply under that next than by the in forty employee benefit years contributions. asreal compensation. retirement incomes will more than double. The average each frequently seen proposal year The oasWhat federal in a(S.2158). suggested does lost benefit society tax revenues. are system Under takeback. get expanding Persistent is this forthe the Anpropos most the foregone estimated federal al,allowable important most revenue? deficits 1.5factor deductions deductions, million have influencing called for employees credits, individual attention benefit now and significant Single-adult and tax tax that treatment policies it changes renew and should of two-earner employee itsin consider commitment at least benefits. households thetosixteen net encouraging With have increase areas adifferent broader pri of and vate employee redistribution tax benefit provision base, benefits. needs marginal for of th economic awealth nThese the tax Employees with Employees with earned $20,000 or less will receive 24 percent of their group's lifetime Benefit Employer Cost b/ Federal Tax $20,001 to $50,000 34 41 42 53 For Inclusion in the Written Record of the Consumption incomes thanTax today's retirees, they will pay more taxes in retirement. 18 In general, basic tax reform proposals would lower marginal tax Employees Employees Average Annual Earnings Pension Coverage, 1983 Health CoveraKe, 1983 Contributions (1982) Expenditures (1982) Tax Incentives For Pensions and Flexible Compensation Plans OComparing ver theirMajor lifetimes, Basic Taxthose Reformemployees Proposalsnow at the beginning of their 19 rates annual only these advance-funded and proposals retirement expand would theincome plans income continue for impose taxthose tobase. provide social reaching Basic some costs. tax age encouragement reform Tax sixty--five deferrals proposals for in benefits the are offer1980s measured that is rates on income could be lowered. Sgrowth. Treasury included: participate to retirement security. exemptions avings Internal oTheAre Meth The basic accounts would oRevenue in dtax tax plans premise be incentives code Code (IRAs) repe Covered with abehind led, makes provisions flexible and bmore and Total benefits the increasing many effective consumption that spending Not items appear cost-effective Percent benefits Covered or currently accounts tax to less 83%subsidize is under effecti that Tot alone, excluded as altheindividuals vcompensation eselect and Social Income 0% from inPercent asgroups achie Security amany djusted should ving and of as tr ComparinK that aditional results Major single-earner, fromBasic expanded Tax Reform pension two-parent Proposals coverage. family. Many of these households need pension-related tax benefits, while 22 percent will go to those earning over $50,001 or more 5 6 16 22 Conclusions United States House of Representatives 21 pension careers will repay all but $0.25 to $0.40 of every tax-deferred ways to restructure---not lower-the nation's tax bill. Three recent Status a (Millions) (Percent) (Millions)(Percent) (Dollars) (Percent) Health insurance (in millions) $65.7 (in millions) $16.4 For Inclusion in the Written Record of the dollar. Notes Committee on Ways and Means 22 constitute Lifetime only legislative on contributions Method: capital proposals accumulation, illustrate and earnings but some actually benefits of therecei that tradeoffs ved provide by inplans, current basic which tax protection means encourages projected tothebe broad $13,376coverage per household of employees. in 1983 The dollars. tax code It is makes expected benefits to program. taxpayers. certain five gross million income goals may than would beother participating bepolicy included. devices in cafeteria aimed The Hatfield at plans the same as proposal a whole. goals? would retain child Life Wbe hattaxed insurance Does At All care, the not Society three and heart on legislative the may Getofeconomic in hthe aveReturn? basic different propos value atax ls,they reform he though al7.2 generate th-movement they and but are life-insurance israther based the widespread 2.0 on on different what needs they belief than use tax $50,000. employee stock ownership plans; cost-of living adjustments in pension Subcommittees on Social Security and Select Revenue Measures reform. NominalEvendollars this amore realistic lifetime measure14 of tax expenditures 86 Less than $20,000 27.9 59.0 83.7 74.3 Accident and disability 3 United States House of Representatives would be cut back. probably still overstates the revenue costs of pension-related tax that Reala doll pension ars b plan must be advance-funded to result 28 in tax expenditures. 72 The cost-effective increaseComprehensi to $26,802 byveproviding Income for those a Tax. tax retiring deduction Senator NOTES between for Bill employers Bradley 2010 and and(D-NJ) preferential 2019. andAverage tax Nup--or ocurrent-l savings There The oEmployer-provided aWhat the w Congress is share tre areatment wide theof and 1implications 8. disagreement, income 2for thepension Administration employer-provided that 19.0for coverage is however upcoming not20. have 6saved. about pensions, ispolicy recently more 21the .The 5debates? proper but become widespread consumption $all 9,661 way concerned other tothan tax 40 employer measure .5about would IRA either $20,000 principles, that insurance the Tax tradition to tax $49,999 benefits would asystem l families result ais re unfair or not in single simil 18.1 the andarpersons inefficient. only NA treatment . advantage 38.0 for The 26.2 re proliferation many ceived 0.Ibenefits. by 23.2 pensi of Ttax oanx plan Employeelimitations; benefits are individual now a mainstay retirementof accounts; the middle-income group term worker's life Source: EBRI calculations based on PRISM simulation results. Committee on Ways and Means Hearing on Distribution and Economics of Employer policy. It ignores the availability of other tax-favored investment Representative Discounted forRichard interest:Gephardt c (D-MO) have introduced a comprehensive Some savings c 36.9 38.4 20.3 21.1 19,209 59.5 $50,000 and over 1.4 2.9 2.7 2.4 Other employer-provided benefits: Subcommittees on Social Security and Select Tables Conclusions Provided Fringe Benefits vincome Employee contributions ehicles taxthat Retirement proposal for couldbenefits be Income (S.1421 used/would Security H.R.32 for retirement 7be 1). included ActItofwould saving 1974 in raise taxable (ERISA) in place theincome. established same of employer amount Thereminimum would treatment employer Total pension for employees. benefits 55.1 will As a57.4 result, increase afrom 40.9 dollar $5,315 in42.6 benefits for those 15,338 mayretiring be worth I00.0inmore the participation. these Trends the exclude at potential pension costs inall Employee forms and raterevenue Preliminary about of Benefits saving whoimpacts benefits from EBRI taxable of results from flexible income the fromincentives until 40 compensation the the HHS-EBRI funds provided programs 60were CPS inused Pension these that for preferences preferences parti child cipants. Flexible care for can compensation Wh mean most atever employer-provided that the differences plans revenue havein benefits cost emerged tax of liability would as the some pension-rel beamong eliminated. employers' individuals ated effort Employer tax-cstem odeto insurance purchased for employees; funded welfare benefit plans; income security, providing hazard protection as well as building assets. As aTotal 1979 income in 1983 dollars. Revenue Measures pensions of atrevenue federas al as well ratecurrent as the law costsby ofusing relying onlyona the three 36taxpayer bracketas tax-rate the 64 sole Total a/ 47.4 I00.0 73.0 I00.0 educational aid bIncludes not only those who were pension participants in 1979, but also Table I How Much of Pension-Rel September ated 1Tax 7 and Deferrals 18, 1984is guarantor structure: fundingCritics standards of 14, retirement of 26, employee for andincomes. private-employer 30 benefits percent.allege Allthat defined-benefit employer benefit-related contributions plans, tax provisions for enhancing to 1980s be the sixtoemployee tax $12,417 brackets, than for athose doll ranging arretiring in from cashbetweeen wages. 6 percent 2010 toand202019. percent. The proportion The currentof provisions. incorporate contributions Supplement provisions, consumption. Employer suggest sound FSAs. Tax-expenditure for The contributions nonpension retirement that consumption Estimates middle- benefits poli measures for oftax and cyemployee thehigher-income design would would federal used benefits tax requires be in revenue treated the allindividuals federal employer have thateffects asincreased this taxable budget contributions were cost of income. FSAs process steadily the be measured primary differ are Had for as respond as I much For further to fromthetheneeds analysis ability of aof todiverse these manipulate issues, work the force see taxwithout Sophie system M. as adding Korczyk, fromtodifferences compensation Retirementin unfunded deferred benefits; distributions in qualified pension plans; muchlegalasservices a fifthplans of all spending onNAhealth care is now 0.6 made through those in this age group who are projected to acquire pension coverage later in Hearing on Distribution and Economics of Lost to the Treasury? 4 benefits other than pensions would be included in the employee's Source: EBRI calculations based on preliminary data from the Bureau of the Security and Tax Policy (Washington, D.C.: EBRI, forthcoming). See also Issue their careers. 6 2 Employer Providedby Fringe Benefits Table 2 Distribution of Employees with Pension and Health Who benefit are taxable Recei regressive, security. ves income. Employee providing The In Benefits? contrast, Section tax the 415 shelters Civil limitsService for onthepension Retirement wealthy benefits and System little and (CSRS) or and no new calculated structure retiree The tax ofonhouseholds exemptions code a cash-flow encourages receiving and ordeductions cross-section employers pension would ato income l extend bebasis, will replaced their grow with benefit byfrom thefive amount 37coverage tax percent credits of the to in widely. Brief beneficiaries a SOURCE: suchshare a"Pension-Related proof Sophie This vCensus, ision compensation of divergence M.been Current theKorczyk, broadening inTaxover Population effect ofBenefits," Retirement estimates thein oflast 1982, IRA Survey no. stems thirty eligibility. Security an25 (May estim from (December years. 1983). ated and differing An Tax $According 72.9 1983) estimated Policy billion assumptions andto(Washington, Issue 31 would Department percent Brief about have costs ability benefits against tothe tothat apay. ccomodate sociado l Energy benefit noteach is result of spent addition incre inutilizing ased asaving. l sgroup. avings taxThis and preferences Most higher includes flexible benefit and various loopholes compensation levels. employee that SOURCE:top-heavy EBRI tabulations plans; estate-tax of U.S. Census treatment Bureau ofCurrent qualified Population pensionSurvey, plan employer-sponsored plans. Pensions also result in a progressive CThe share of lifetime taxes paid by those with base-year incomes below Dr. Sophie M. Korczyk* contributions would be made much more restrictive than under current Coverage by Earnings, 1983 7 D.C.: EBRI, forthcoming). "Employee Benefits and the 1985 Reagan Budget," no. 27 (February 1984). 1983 and EBRI-HHS Current4 Population Survey Pension Supplement. SOURCES: Employer cost data from table 6.15 in U.S. Department $50,000 is higher than their share of current-year taxes, because their Table 3 Net Lifetime Pension-Related Tax Benefit Shares law. The expansion of employee benefits has primarily helped the benefits the the Military 1980s for to 71 Retirement anyone percent else. by System 2019. EBRI (MRS), research, the using two major data federal collectedretirement by the federal plans, lower- and moderate-income employees. The preferential tax treatment accorded of been taxes of the for Commerce households design the added deferred Incretaxp ased of toestimates, ayer, these that by reporting savinKs. current programs, spouse, year'scash incomes pension taxable and Pensions outlays distribution dependents; plan ofemployee for $15,000 both participants employee of compensation in participants and or crease for higher benefits offset portions and (Table hold among against beyond reallo IRA of various 5). cate the ch wages accounts, aritable Federal amount types totand al pl could redistribution benefits ans abe llow thspent atemplo provide ofyon ees wealth more to insurance that tr productive ade favors benefits protection, activities. those in one at but the area does High lower for not marginal incre end include aof sesthe pension tax in income other rates or benefits; pension plan rules for affiliated service groups, employee of Commerce, Survey of Current Business vol. 63, no. lifetime incomes are higher than their current-year incomes. In 1982, September 17 and 18, 1984 middle income worker. Among employees who were covered by pensions in Among Employees Aged 25 to 34 8 Senator Mark Hatfield (R-OR) has also introduced a comprehensive alndividuals 2 Unpublished aBefore areestimate, adjusting classified EBRI. forasinflation. having some savings or no savings based on a/ Detail may not add to totals due to rounding. Totals include only those 7 (July 1983), p. 74. Tax expenditure data from taxpayers with incomes over $50,000 paid 35.4 percent of total income taxes. 1983, nearly 28 million (or 59.0 percent) earned less than $20,000. Thave government able little 4 Saand vings, impact projections Pension on taxCover based expenditures age,on and these Income, because data, 1983 shows they conclusively are largely I0 that unfunded. this tax proposal Tax payments (S.2158). by retirees The Hatfield will proposal reflect would this retain income current-law growth. Pension 5benefits of of compared scale salaries hether contributions, taxes programs, whoor bArter paid have is with donot contingent not and bygrown home adjusting 9they tend current the percent mortgage from to reported elections upon save beneficiaries. for 4.9 ofinterest, compliance much inflation. percent households any that outasset participants of tof awith xes Measured current total income with paid, the compensation incomes income. tax this in and make. code's response medical way,below FSAs about nondiscrimination in expenses. toinstituted $15,000. 1950 $0.83 the tosurvey out15.8 of By in benefits. tax scapital avings. revenues, accumulation IfA pension two-earner as measured plans, contributions couple, since by they the for wereresult U.S. ex received ample, Tre inasury's saving. can as catrade sh calculations income, redundant total ofhealth saving tax health encourage leasing andExecutive taxpayers pension arrangements, to plan office seekparticipants out and of tax-favored collective the President, who sources reported bargaining Office oftheir income--capital agreements; of earnings cash in gains, the or U.S. Department of the Treasury, Internal Revenue Service, Statistics of by Among employed persons with employer-provided health coverage 83.7 treatment Table 5 Emplo for yeremployer-provided Contributions andpensions, Treasury Department but all Tax other employer uestions. Clnterest Asset income rate includes used to interest, discount dividends, taxes paid rents, in retirement and royalties. to the Survey. 3 Sylvester When J. thoseSchieber, not reporting Social their Security: earnings Perspectives are added,on coverage Preservin_ totals the Management and Budget, The BudKet of the United Income Bulletin, Winter 1983-1984 (Washington, D.C.: Internal Revenue Dr. Sophie M. Korczyk _ million contributions (or 74.3 for per benefits cent) would earned beless includ than ed in $20,000, taxableandincome. 23.2 peThere rcent beneficiaries Underfunded is not the Expenditure case. or retiring unfunded Rather, in Estim plans, the the ateshowever, 1980s distribution for will Sele can cted paycost ofVan oluntary employee the avertaxpayer age Benefits benefits of $15,808 much follows more 20in intaxes the the Consumption Tax provisions percent conjunction comparison, year every System expenditures Coverage oftax-deferred (Washington, retirement. inrefers governing 1982. with almost attributable atoleaner dollar five Over D.C.: coverage public- times aEBRI, health to appears third of these and as 1982), the plan of many pri tobenefits, employer's vate-sector this be p. probably workers I00. lost amount could to work contribute earning the pension finances force. have Treless asury been plans toemployer-sponsored than slowing as (see and much $15,000---43 table includes down as I). $19 the are cover wouldhigher. age deferred Three decrease. for recent other arrangements; Thebenefits legislative drop, moreover, sutreatment ch proposals as dependent would of certain implement be crel are, atively medical increased thesegreand principles. aterlife other among insur benefits lower- aThese nce, for example--and tax-favored uses of income, such as housing. As a result, This States redistribution , Fiscal Year can1982 be, demonstrated Special Analysis by comparing G. data on pension Service, 1984), p. 20. earned between $20,000 and $50,000. Fewer than 3 percent of pension and would be six tax brackets, ranging from 6 percent to 20 percent. holders of IRA or Keogh accounts. 5 I0 health (1983 dollars) insurance on parti their cipantsbenefits earn more overthanthe$50,000. course of their retirement. overall long run.distribution In sum, pension-related of income very tax closely; policytheis middle not as class costlygains as available the most or addedConsumption vacation time. Tax. Senator Dennis DeConcini (D-AZ) has introduced Clncludes pension percent--are 4growth Such proposals Ibid., estimates Historically, Senator ofplans. p.benefits individuals illustrate 90. covered Dennis overstate Pension as the some reporting by aDeConcini tax contributions share the of employer code the amount ofhas negative tradeoffs (D-AZ) compensation pensions. of also increased revenue has worked asset in introduced basic because from lost Since income withtax 1.8 due inflation health IRAs (i.e., reform. percent toa such consumption bycare decreases toof All their provisions, costs encourage employee of very them are tax in billion investment and moderhigher, ate-in andcome other assuming employees. economic current-l decisions aWhile w taxnonpension rare ates.often sdri aving ven is by ctax oncentrated needs as amuch mong coverageunder andsection income 415; from the savings statutory as reported treatment inof the certain 1983 employee Health and benefits; Human a/ Voluntary benefits are those not mandated by law. Examples a consumption tax proposal (S.551). Under this proposal, all income asset values). of mandatory benefits are Social Security benefits and Flexible Compensation Plans revenue from employee loss estimates benefits. would suggest. Pension other than beneficiaries that used for retiring investment between would 2010 be andtaxed 2019, atina contr marginal ast, will rate pay an 5however. benefit definition the compensation proposal Unpublished fastest-growing growth (S.55 Bec doin 7a). use EBRI not as 1950 employee tabulations Under protection today's have to this 5.3 any benefit. pension-pl percent of proposal, against nondiscrimination PRISManin simulation inflation-driven all1982. participants incomeThis results. standards othergrowth will increases thanprotecting appears that have used inhigher toreal the for be as rel combine aby tively Flexible The economic tax primary high-in rate compens returns creduction ome differences ation individuals, andwith plproductivity aamong nstax arethese base apensions relatively expansion, considerations. proposals are new distributed with aredevelopment inimplications An their adv broadly atre ntage inatment employee foroften among most of Servicespension-plan (HHS) andterminations; Employee Benefit voluntary Research employee Institute benefits associations; (EBRI) Current and unemployment compensation. of 19 percent. This tax structure would be financed by eliminating b/ Totals cover both private- and public-sector employees. Who Receives There The labor is Employee much forceunfinished Benefits? is changingbusiness rapidly.in Flexible employee compensation benefits, however. plans The nearly average all of current $44,672 law in taxes tax preferences. (1983 dollars)Contributions on pension and benefits benefits during in their marginal retirement interests slowing, employee in investment come Employers groups. however. benefits. tax ofwould incomes those rates. with be Between atthan flexible During the taxedtoday's lower 1980 the atcompensation and end past a retirees, marginal 1982, oftwenty thefor plans income years, rate they example, have scale, ofwill inflation 19 found employee expanding pay percent. that has more benefits pushed the IRA taxes This ability limits most grew tax in benefits retirement cited rules forthat governing expanding incomeis programs. now multiemployer thebectax oming Thebase plans. fully DeConcini and delineated. reducing and Hatfield margin While al proposals some tax rates flexible wouldis 6 For background on flexible benefits plans and their relevance to changing Population Survey (CPS) Pension Supplement, the best available source of The views expressed in this statement are solely those of the author and have retirement-income emerged as some programs employers' wouldeffort retain to respond their tocurrent the needs tax-law of a employee needs, see Dallas L. Salisbury, ed., America in Transition: should not be attributed to the Employee Benefit Research Institute, its retirement. recent diverseThe recession, work expansion forcecombined without of employee with adding long-term benefits to compensation interindustry has primarily costsshifts tohelped accin omodate employment, the middle treatment. The employer's contribution for health, welfare, and retirement. would 1.6 taxpayers to Comprehensi structure choose percent provide ve increases into would annually Over nothing Income higher betheir employees' Tax as for financed marginal alifetimes, these share households. satisfaction byoftaxcompensation, eliminating those brackets, employees with nearly despite their compared nowbenefits all at legislation with the current an even beginning annual when lowering law rate the tax of celiminating Implications ompensation Pensionsthis for plans also Employee effort existed change by Benefits asmaking theearly (Washington, distribution the as tax 1972,code D.C.: Section of more saving EBRI,125 neutral 1982); among of the in Issue investment Intern economic Brief al continueThe importance the current-law of employee treatment benefitsof inpensions. tax policy The promises Bradley-Gephardt to continue information on pension coverage. Direct information on savings would be officers, trustees, sponsors or other staff. each additional group. Most flexible compensation plans allow employees "fringe" benefits, however, would no longer be tax deductible as an "Flexible Compensation and Public Policy," no. 24; and Chapter XXII, "Flexible to trade benefits in one area for increases in other benefits. A appears employer income worker. to compensation have Among reduced expense. employees pensionwhocoverage were covered rates by from pensions pre-recession in 1983, levels. nearly of decisions. preferences. overRetirees 4 percent All notbetween income only 19 receive would 70 and be larger 1980. taxed once, retirement and asincomes close to as the a result source of as nominal dollar their pension value tax rates careers of the for will the benefits different repay package all income but is$0.25 levels. unchanged. to $0.40 This of This "bracket every can tax-deferred creep," reduce the the proposal, vehicles. Expanding Senator however, Nonpension Bill theBradley would Social savingimpose (D-NJ) Security consists more and primarily program Representative restrictiveat of liquid the benefit Richard expense saving andGephardt contribution deposits of employer (D-MO) and Revenue as Compensation the Congress Code Plans" was tries enin acted Fundamentals to in deal1978 withto of projected Employee extend the Benefit federal statutory ProKrams deficits. prote(Washington, ction Both from the preferable to the data on income from savings, but it is not available on a Sophie Korczyk earned her Ph.D. in economics from Washington University (St. two-earner couple, for example, can trade redundant health coverage for All three legislative proposals, though they are based on D.C.: EBRI, 1983). The views expressed in this statement are solely those of the author and Louis). Dr. Korczyk is presently a research associate at the Employee Benefit other 28 million benefits (or su59.0 ch aspercent) dependent earned care,less increased than $20,000 life insuran (Tablece,2).or Among While different employerthepensions, tax economy principles, but is their now recovering, would benefitseliminate arethemoredamage taxsecure preferences done due toto benefit legally for mostmandated coverage gradual current dollar. limits possible. The under basis. increase Astax--favored Advocates the Section in pension real 415 oftreatment such mof system arginal the a tInternal matures, aof xtaxstructure qualified rates, Revenue thehas numbers argue pensions prompted Code. that andLimits pred the itincome awould use tesonof levels even allowable eliminate noncash the of pensions pressure have investments introduced would on inemployers present owner-o a comprehensive cca upied to different increase homes income setor benefits oftax other problems. proposal to consumer maintain Most (S.1421 durables. researchers /aH.R.3271). competitive Pension agree It tCongress axation The th and arguments at the applies Administration fortobroadening other employee have theexpressed tax benefits base considerable have to plans attracted that interest agive wideemplo in range basic yees of added should vacnot ationbe time. attributed to the Employee Benefit Research Institute, its Research Institute. Her previous positions include appointments at the employer-provided benefits. Employer contributions for nonpension 7 For a detailed discussion of the mechanics of basic tax reform, see EBRI officers, trustees, sponsors or other staff. benefits Congressional would Budget be treated Officeas taxable and university income. teaching and research positions. employed levels Employers will persons take with with longeremployer-provided flexible to repair. compens Employers ation healthplans coverage in low-coverage have 83.7 foundmillion that sectors the (or and74.3 in advance funding. This security is all the more important as debates over the benefits pension-plan establishment allowing to income stem participants of to the theescape Social erosion and tax Security aof tion retirees realentirely, system income. will indiffer while Up 1935. toother 30 less Statutes percent than incomeenacted they ofisthe taxed do benefit intoday. 1921 more compensation benefits that would the raise inSocial defined-benefit the package. same Security amount The ability pplans aof yroll revenue would oftaxemployers be as as reduced current it and is from law currently employees by $90,000 using to constituted under use only flexible a current three is Issue some reform political funds,choice Brief of insupport. the c"Basic ontrast, overpersonal the Conservatives Taxmix are Reform: income of invested employer-provided Implications tax. support in Atse broadening curities least for benefits Employee a the that dozentax they finan Benefits," basic base cerecas eive. tax produ a no. way reform ctive The of 28 Accumulated pension benefits constitute the major form of savings for ability Portions toof choose this statement increases areemployees' based on sSophie atisfaction M. Korczyk, with their Retirement benefits Security (March 1984). Conclusions Sophie Korczyk earned her Ph.D. in economics from Washington University (St. small and than Tax once. firms PolicFwill (Washington, need timeD.C.: and EBRI, a secure forthcoming). economic environment to establish percent) earned less than $20,000, and 23.2 percent earned between $20,000 and e fiscal ven when stability the dollar of the valueSocial of theSecurity benefits system packagecontinue. is unchanged. Social The Security growth As a result, over this in twenty-year the future, period pension-related may be attributed tax expenditures to attemptsmeasured to alleviate using and compensation regressive. bracket later,tax-rate covering to Thecontain American structure: income benefit people from14, cost would trusts 26, growth almost and andsuggests pension 30surely percent. that plans, demand these The were that plans reduced designed thecan taxhave rate be to proposals law sta eliminating capatcutory ity to $60,000; and were authority the emplo introduced income-earning contribution yment. for these inPension the plans limits disincenti 97th funds has Congress invbeen es have defined-contribution and inand grown plmarket amore cetofor were beinterference six theintroduced plans years, single would but of largest inhigh the the be more than half of all persons with pension coverage. According to the CPS, Louis). Dr. Korczyk is presently a research associate at the Employee Benefit ability of employers and employees to use flexible compensation to 8 Both tax systems would require detailed judgments about the treatment of 1 Research Institute. Her previous positions include appointments at the $50,000. Fewer than 3 percent of pension and health insurance participants benefits employeeWe benefit aask, nd employer Mr.plans. Chairman, pension A secure that benefits theeconomic Congress complement environment recognize each other. how meansmuchnot Asitpension only a encourage the inflation's supplier Treasury's Contributions of theimpact investment expansion approach onand employee will offunds benefits pension becompensation. much to in co finan closer verage retirement-income cial to and markets. lifetime increasedestimates. At progr saving aamstimelevels would when and retain unmet to vlowered restructured important arious sources from macroeconomic if $30,000 andituses were to effects of$20,000; to income. increase byandstabilizing Bothindexing significantly. would also of benefit these creategrowth Itlimits some is formidable and unlikely, wouldlabor be marginal Administration structure tax wouldrates. issued be financed preliminary Liberals by eliminating support regulations broadening or cutting governing theback tax theapproximately base implementation as a wayforty of of 98th Congress. President Reagan has also asked that the Treasury department Congressional Budget Office and university teaching and research positions. has already achieved in safeguarding the economic security of the implementation and transition problems. These problems and issues are treated Portions of this statement are based on Sophie M. Korczyk, Retirement Security earn more than $50,000. benefits increase, Social Security benefits become a smaller share of healthy American economy worker and but that also it a stable renew its regulatory commitmentenvironment. to encouraging A pension privateplan in furthermore, their While Even current this the that tax-law tax morethecode realistic federal treatment. is a major budget lifetime The factor system measure employer's encouraging would of tax be contribution able expenditures benefit to tolerate growth for prob health, it ably the is these costs. current-law plans Stabilizing in taxMaypreferences. ofbenefit this year. growth Tax preferences will keep wages that would and salaries be retained a constant include eliminating eliminated. in detail elsewhere. tax-code The immediate provFor isions effects a discussion perceived of thisto ofchange benefit employer would primarily pensions be felt theinprimarily rich. basic tax by analyze basic tax reform options and prepare a report by December 1984. and Tax Policy (Washington, D.C.: EBRI, forthcoming). provision for economic security. reform, see Sophie Korczyk, Retirement Security and Tax Policy (Washington, spending and tax increases that would be necessary if Social Security were to