Inflation Legislation Could Indirectly Affect Retirement Plans
In a somewhat surprising compromise, Congress passed the Inflation Reduction Act in August 2022. A pared-down version of President Biden’s Build Back Better plan, much of the law is devoted to fighting climate change and supporting clean energy, in part, through tax credits. The Act will also lower Medicare prescription drug costs and reduce the federal deficit by a reported $275 billion over 10 years.1 To help pay for these changes, the Act sets a 15 percent minimum tax for corporations earning more than $1 billion and a 1 percent tax on corporate stock buybacks, along with increasing the IRS’s budget by $80 billion.
Even though the Act doesn’t include any of the retirement plan provisions that were included in the Build Back Better plan (which would have eliminated conversions of after-tax retirement savings to Roth
IRAs, as soon as 2022, and prohibited high earners from making any conversions, beginning in 2032), it could still affect retirement plans.
- The IRS budget increase is intended to help boost
the agency’s ability to enforce and collect taxes.
If the IRS devotes a portion of that funding to
its Employee Plans division, there could be an
increase in IRS examiners and plan compliance
enforcement initiatives. - With the emphasis on fighting climate change
and producing clean energy, investors may
perceive environmental, social, and governance
(ESG) factors as more important to their personal
or economic objectives. This could increase
participants’ demand for ESG investment options
within retirement plans.