"Churn" Factors

British Statesman and Philosopher Edmund Burke famously commented that “”Those who don’t know history are destined to repeat it.”(1) Indeed, those with experience working with employee benefit plans, can attest to a certain déjà vu-esque quality amidst the recent discussions about tax reform, limiting deductions, and “capping” contributions. These, are, in many ways, old “solutions,”(2) albeit these days arguably applied to a new (or at least different) set of circumstances.

As the 113th Congress begins its work, and the Obama administration readies for a second term, it is perhaps not surprising that the nuances of employee benefit plans and their tax treatment might not be an area of expertise for many on Capitol Hill. However, for all the longevity in tenure frequently assumed regarding those in Congress, a review of the data shows just how much turnover has taken place.

For example, you might not be surprised to learn that no member of the current Senate was in office when Medicare, or even ERISA was signed into law. But, as EBRI President and CEO Dallas Salisbury noted recently for the EBRI Board of Trustees, just three of the current 100 members of the Senate were there when Sec. 401(k) became law, and only 10 were there when the Tax Reform Act of 1986 became a reality. Fewer than half of the Senate were in their current office when the Pension Protection Act of 2006 passed.(3)

The implications for policy making in the midst of that kind of turnover are significant for employers and employees alike. Moreover, in an environment where expanding the transferability of Roth 401(k) balances is positioned as a revenue-generating mechanism to stave off sequestration, it seems increasingly obvious that every item of potential revenue or cost savings will be viewed through a new prism of scrutiny, where the short-term cost of the benefit may well trump the long-term value. And, as the data above suggests, by many who come to these deliberations without the full understanding and appreciation that experience in these complicated matters—a “history”—can provide.

One of EBRI’s founding principles in 1978(4) was the acknowledgement that “an ongoing need exists for objective, unbiased information regarding the employee benefit system, so that decisions affecting the system may be made based on verifiable facts.” And, as EBRI approaches its 35th anniversary, it’s clear that that need for information, and its critical role in making thoughtful decisions, remains undiminished.

- Nevin E. Adams, JD

1) A century later George Santayana would write in his “Reason in Common Sense, The Life of Reason, Vol.1,” that “Those who cannot remember the past are condemned to repeat it.”

(2) In fact, a 1993 EBRI Issue Brief titled “Pension Tax Expenditures: Are They Worth the Cost?” cites a 1991 National Tax Journal article that observed, “Whereas the case for employer-sponsored pensions as an institution is strong, the case for a major tax expenditure is weak…given the demands on the budget, eliminating a tax expenditure that benefits a declining and privileged proportion of the population should be given serious consideration.“ See “Pension Tax Expenditures: Are They Worth the Cost?” online here.

(3) See chart above, which tracks Senate turnover, by party, since 1975.

(4) See Facts about EBRI, online here.