401(k) Plan Revamp Eyed By Senate Finance Committee

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With less than one-half of workers having access to a retirement plan and even fewer saving enough for their old age, Congress is looking at ways to help get more Americans on track to a secure retirement.

On Thursday, the U.S. Senate Finance committee will listen to proposals from a range of interests. On the table are such ideas as revamping the tax treatment of 401(k) plans to make the system more automatic, and possibly adding caps to make contributions less tax-favorable to higher-income workers.

The hearing comes as the so-called retirement deficient Income, the gap between the pension and retirement plans Americans have today and what is necessary to maintain living standards, is at a high of $6.6 trillion, according to the Retirement Research Center.

"Fewer than half of the working public currently have access to a workplace-based retirement plan, so the hearing will address ways to encourage more employers to sponsor – and more employees to participate in – 401(k)-type plans, individual retirement accounts and other vehicles, while maintaining and protecting the existing programs and savings that millions of Americans are counting on for retirement," according to a statement from the Finance Committee.

A series of hearings are expected to take place that will look at the economy and tax code. The Finance Committee is expected to make recommendations to the new Joint Select Committee on Deficit Reduction, tasked with finding $1.6 trillion in savings to curb the federal budget deficit.

One controversial proposal comes from the Brookings Institute. Senior Fellow William Gale will talk about reinventing 401(k)s by substituting the current deduction for contributions with a flat-rate refundable credit that would be deposited directly into the saver's account.

Gale of the Brookings Institute, says that a flat rate refundable credit will:

1."Address long-standing concerns in the retirement saving system by improving incentives for most households to participate and by raising national saving.

2. Offset pressures created by the current weak economy for households to reduce their retirement saving.

3. Help solve the long-term fiscal problem facing the country by raising $450 billion over the next decade in a manner that is consistent with the principles of broad-based tax reform and distributes the fiscal burden in a progressive manner."

Some, like Judy Miller, a chief of Actuarial Issues/Director of Retirement Policy at the American Society of Pension Professionals and Actuaries, say the system needs fine-tuning but not a complete overhaul. "We really don't think that the system needs to be totally restructured. We think it's about more minor modifications and making some adjustments," Miller told ABC News. "The system is working really well for millions of people."

Karen Friedman, EVP and policy director at Pension Rights Center, will testify about the retirement income deficit. "Our concern is that the tax breaks for 401(k) disproportionately benefit higher-income people and those are people that generally would have saved for retirement without the incentives."

One proposal from the Bipartisan National Commission on Fiscal Responsibility and Reform, known as 20/20, would add a tax-preferred cap to retirement contributions of lower than $20,000 or 20 percent of income. That would cause a result in a tax-deferred retirement savings reduction for the highest income workers.

Officials emphasize that no decisions have been made and the committee is just gathering information at this point. Congress would likely have to enact any substantial changes.