Tax Reform Options: Promoting Retirement Security by Jack VanDerhei, Employee Benefit Research Institute: “Currently, the combination of worker and employer contributions in a defined contribution plan is capped by the federal tax code at the lesser of $49,000 per year or 100 percent of a worker’s compensation (participants over age 50 can made additional “catch-up” contributions). As part of the effort to lower the federal deficit and reduce federal “tax expenditures,” two major reform proposals have surfaced that would change current tax policy toward retirement savings:

• A plan that would end the existing tax deductions for 401(k) contributions and replace them with a flat-rate refundable credit that serves as a matching contribution into a retirement savings account.
• The so-called “20/20 cap,” included by the National Commission on Fiscal Responsibility and Reform in their December 2010 report, The Moment of Truth, which would limit the sum of employer and worker annual contributions to the lower of $20,000 or 20 percent of income, the so-called “20/20 cap.”