The rancorous partisan discussions in Washington aimed at avoiding the fiscal cliff on January 1 may inadvertently target some of the tax preferences that support employer-sponsored retirement plans. Employers and their lobbying arms in Washington are sounding the alarm in an effort to forestall any move that could harm retirement plans and savings incentives.

“I hear a lot of concern being expressed by plan sponsors,” says Alison Borland, retirement solutions and strategies leader for Aon Hewitt, based in Lincolnshire, Illinois. “There’s a tremendous amount of support for the retirement system. Employers appreciate the ability to have the flexibility to design and construct something that will make a possible difference for their employees when they retire,” she adds.

The fear by employers is that any limits on the deductibility of contributions to retirement plans by employers and employees that might be a part of resolving the fiscal cliff or even in broader tax reform next year would hinder the ability of today’s employees to attain retirement security for the future. “When they look at the savings behavior today, they believe more savings is needed, not less,” Borland says. Limiting tax preferences would instead reduce savings, she adds.

If no agreement is reached by January 1 between the Republican speaker of the house and the Democratic president, then tax cuts adopted by Congress during the early years of first Bush Administration, which were extended last year, will expire. A partial payroll tax holiday passed last year and backed by President Obama would also expire.

In addition, spending cuts in a sequestration agreement hammered out in August 2011 in the Budget Control Act will kick in with the expiring tax cuts, as well as new taxes from the Patient Protection and Affordable Care Act, to reduce the nation’s budget deficit next year by $560 billion, according to the Congressional Budget Office. The resulting fiscal shock is likely push the economy back into recession, CBO says. Limits on tax preferences for employer-sponsored plans surfaced in the Simpson-Bowles National Commission on Fiscal Responsibility and Reform’s deficit reduction plan in late 2010 and in President Obama’s proposed federal budget last February, as well as in various deficit-reduction proposals from public policy think tanks.

Various proposals being bandied about in Washington would either cap employee and/or employer contributions to retirement plans — or more broadly put a cap on the total amount of deductions individuals can claim, either for higher income earners or for all tax filers.