The Investment Company Institute (ICI) has published a report underscoring the necessity of retaining the current structure of 401(k) and other defined contribution (DC) plans in the United States. The study, titled ‘American Views on Defined Contribution Plan Saving, 2024,’ indicates that nearly three-quarters of Americans view employer-sponsored retirement plans favorably.
Among employees enrolled in DC plans, 85% consider the associated tax benefits a primary incentive to contribute. Sarah Holden, ICI’s senior director of retirement and investor research, emphasized that these plans have supported American workers in securing long-term financial stability through features such as employer contributions, tax-deferred growth, and a diverse range of cost-effective investment choices.
The report’s findings further highlight widespread resistance to policy changes that might reduce tax advantages tied to retirement savings. The data reveals that 85% of respondents oppose eliminating tax incentives for DC plans, while 86% reject the idea of lowering contribution limits. A significant portion of participants acknowledged that workplace retirement plans played a crucial role in building their financial security.
Additionally, another 86% of surveyed U.S. adults objected to restrictions on individual investment decisions within DC accounts, and 77% disapproved of government-appointed experts selecting retirement investments on their behalf. As lawmakers consider potential reforms, ICI continues to advocate for retaining existing tax policies and DC plan structures to support millions of Americans preparing for retirement.
Key Takeaways
A report highlights the importance of maintaining 401(k) plans due to their role in securing American workers’ long-term financial stability, with strong opposition to policy changes that could reduce tax advantages.
- 85% of Americans enrolled in DC plans view tax benefits as a primary incentive for contributing.
- ICI advocates against reducing tax incentives and lowering contribution limits for retirement savings.
- SECURE 2.0 Act allows individuals aged 50 and older to contribute an additional $7,500 beyond standard limits.
Legislative priorities and regulatory changes
In response to evolving political leadership, ICI’s January 2025 Quarterly Update outlines key legislative initiatives aimed at strengthening the retirement investment landscape. opportunities and protect shareholders. It also aims to strengthen the role of funds in the national retirement system.
The nomination of former SEC Commissioner Paul Atkins as a potential chair of the Securities and Exchange Commission (SEC) and the appointment of Mark Uyeda as Acting Chair signal a shift towards more market-friendly regulations.
I enjoyed meeting with Paul Atkins, the @SECGov Chair nominee. We discussed digital asset legislation & reforming the rulemaking process. Thanks for stopping by, and I look forward to putting the SEC on the “Atkins diet!” pic.twitter.com/WBUAxnOMNl
— Senator Cynthia Lummis (@SenLummis) January 7, 2025
ICI has proposed reforms aimed at encouraging innovation in exchange-traded funds (ETFs), expanding access to private markets for retail investors, minimizing unnecessary regulatory expenses, and utilizing the expertise of fund directors to improve governance.
Beyond SEC-related reforms, ICI is pressing the Internal Revenue Service for administrative guidance to alleviate excessive tax burdens on investment funds and shareholders. The ‘Help U.S. Retire’ initiative has been introduced to defend the tax treatment of defined contribution plans and individual retirement accounts (IRAs).
In parallel, ICI backs the Retirement Fairness for Charities and Educational Institutions Act, which seeks to provide nonprofit and public-sector employees with access to investment options comparable to those available in private-sector 401(k) plans. ICI also supports legislative efforts to modernize rules for closed-end funds, shielding long-term investors from the adverse effects of activist campaigns.
Further, the organization is advocating for reforms to the Financial Stability Oversight Council’s designation process to prevent undue regulatory burdens on nonbank financial entities.
Enhanced catch-up contributions under SECURE 2.0
A critical update to retirement savings plans will take effect in 2025 under the SECURE 2.0 Act, allowing certain employees to increase their 401(k) catch-up contributions. The revised rule permits individuals aged 50 and older to contribute an additional $7,500 beyond standard limits, bringing their total annual contribution cap to $31,000.
A special provision grants employees between the ages of 60 and 63 an elevated catch-up allowance of $11,250, enabling higher-income earners in this age bracket to maximize their retirement savings. However, this expanded opportunity applies only within a four-year window, after which individuals turning 64 will no longer qualify for the enhanced contribution benefit.
By increasing contribution limits, the legislation aims to help older employees optimize their peak earning years while deferring tax obligations on additional savings.
Deciding whether to take advantage of this expanded contribution opportunity requires careful financial planning. While 401(k) plans to offer long-term tax-deferred growth, participants must evaluate potential downsides, including high management fees and limited investment selections. Individuals in their early 60s often experience peak earnings, making tax deferral particularly valuable.
Contributing additional funds during high-income years reduces taxable income and provides an avenue for greater financial security in retirement. Beginning in 2026, an additional SECURE 2.0 provision mandates that high-income earners allocate catch-up contributions exclusively to Roth 401(k) accounts, eliminating immediate tax benefits but ensuring tax-free withdrawals in retirement.
Strategic planning for retirement savings
For those in a position to save more, leveraging the increased catch-up contributions in 2025 presents a strategic financial opportunity. The ability to defer taxes while significantly boosting retirement savings can be advantageous, particularly before the Roth 401(k) mandate takes effect.
While concerns over 401(k) fees persist, some individuals may find that the immediate tax savings and employer-provided investment options justify the costs.
Many Americans believe tax-deferred accounts like IRAs and 401(k)s will save them money in retirement, only to find themselves in the same or even higher tax brackets. If you’ve saved a significant amount, deferring taxes could mean compounding your tax burden, not reducing it… pic.twitter.com/tvNaWxV4Se
— Doug Andrew (@dougandrewnow) February 4, 2025
As regulatory conditions evolve, those eligible for the heightened catch-up provision should carefully assess their financial situation and consider capitalizing on the opportunity while it remains available.
