Another popular workplace benefit is a retirement plan. As with employer-provided health care, the uncollected tax costs are large.
Defined benefit plans, usually referred to as traditional pension plans, pay retirees a fixed amount based on each worker's salary history and length of employment. Employers make tax-deductible contributions and as plan earnings accumulate, they are deferred from income tax. And even though workers will owe taxes when the retirement income is received, the tax cost of this type of plan is estimated to reach more than $248 billion between 2014 and 2018.
Many companies have switched to defined contribution retirement plans. Here a worker's future retirement money depends primarily on the worker's own contributions, though some businesses match at least part of the employee contributions. The most common type of defined contribution retirement plan is a 401(k), in which taxes on the contributions and earnings are tax-deferred until the worker takes out the money. These plans are estimated to cost the Treasury $399 billion over five years.