January 4, 2013
The late-brokered deal to address the fiscal cliff, signed into law earlier this week, averted some of the fiscal shock that many economists had predicted would be enough to reverse the country’s slow recovery and threaten another recession. The greatest impact of the new law is on individual taxpayers, although there are a few provisions that may affect the retirement plans of plan sponsors. As widely reported, the new law sidesteps other significant issues, including the looming national debt ceiling, more comprehensive tax reform, spending cuts and entitlement reforms.
Here is TIAA’s assessment of the new law as it applies to you as a plan sponsor and also what you can expect in the months ahead:
Looking ahead on taxes
While the fiscal cliff deal effectively prevented the majority of Americans from experiencing substantial tax increases, Congress still has a number of additional issues to address in the coming months. Before the end of February, lawmakers will have to consider increasing the federal debt limit and come up with a plan to avoid the automatic budget cuts specified in the “sequester” that were supposed to go into effect on January 2, 2012, but were delayed by only two months as part of the deal. Additionally, the temporary spending measure under which the government is operating is set to expire at the end of March and will need to be addressed. These events, coupled with the overall desire to reduce the deficit, will drive Congress to consider reforms to the tax code to find more revenue and, potentially, simplify the code for taxpayers.
Expect more debate on tax code deductions. These taxpayer deductions cost the government more than $1 trillion in unrealized revenue each year and include provisions for such deductions as employer healthcare premiums, mortgage interest, and the deferred treatment of retirement plan contributions. Given that Congress will be taking an “everything’s-on-the-table” approach with respect to deficit reduction, these deductions along with many others likely will be scrutinized for the potential revenue they could generate for the federal government.
How the new law affects your employees
There’s been considerable media coverage regarding the impact of the new law on individuals. We’ve provided ongoing updates on our perspective through our website and will continue to offer commentary as the national debate on spending cuts unfolds.
We have experienced a substantial spike in call volume to our call centers. Some of that simply reflects the time of the year but some relates to the situation in Washington. If you also receive more inquiries from your employees about financial implications of the new law on them, feel free to direct them to our website, where they’ll find a lot of information, or to our call centers, which stand ready to serve them. Many market observers forecast that volatility will likely continue, which can further raise anxiety levels. Again, we offer a number of resources to help your employees deal with these complex financial times.
In short, we continue to stand ready to help you in any way we can. We also will keep you abreast of our perspectives on these evolving issues as events play out in the coming weeks and months through our plan sponsor website.