From the September 2005 issue of Investment Advisor • Subscribe!

An Offering from the Other Side of the Aisle

House Democrats recently unveiled their version of retirement reform in a package called AmeriSave, which is designed to increase incentives for middle-class workers to save in a 401(k) account or IRA.

The AmeriSave plan, introduced by House Democratic Leader Nancy Pelosi (D-California), would match dollar-for-dollar the first $1,000 contributed to an IRA, 401(k), or similar plan. The match would be directly deposited into a participant's 401(k) or IRA after they've filed their tax return. The plan also calls for automatic enrollment in company plans and faster 401(k) vesting, and would provide a tax credit to employers who encouraged workers to consult with a certified financial counselor about their retirement.

In addition, AmeriSave would give small businesses tax credits so they have some extra money to set up retirement accounts for their employees and themselves. It would also encourage employers to offer employees the option of converting their retirement plan into an annuity upon retirement. Employers would receive a tax credit to offset the cost of administering an annuity.

The Democratic proposal would also remove incentives for corporations to dump their pension plans when they have sufficient assets to sustain it, and also give employees "a bigger voice" in deciding if their employer should do away with the plan. Furthermore, the proposal would require companies to inform employees of their pension plan's funding status.

Rep. Bill Thomas (R-California), chairman of the House Ways and Means Committee, is due to release this month his sweeping retirement reform package, which will also include methods for Social Security reform. The package will likely include the Growing Real Ownership for Workers (GROW) Accounts that were introduced in June by Rep. Jim McCrery (R-Louisiana), chairman of the House Ways and Means Subcommittee on Social Security. That proposed legislation calls for devoting the Social Security surplus to GROW Accounts, which would be invested in guaranteed, marketable Treasury securities. Upon retirement, the money in the accounts would be used to help pay workers' Social Security benefits. However, the GROW accounts do nothing to address Social Security's looming solvency problem.

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