Bushs Sweeping Retirement Proposals Causing Some Industry Apprehension
The scope of President Bushs proposals to revamp the nations retirement system is raising eyebrows in the insurance industry and causing some to question the impact on annuities.
“I was surprised by the sweeping recommendation to change the whole retirement system in the United States,” says Albert J. “Bud” Schiff, president of NYLEX Benefits, Stamford, Conn., and president of the Association for Advanced Life Underwriting.
“It was very dramatic. It took us by surprise,” he says.
The proposal, Schiff says, raises a lot of questions. Most important, he says, is the question of whether it will actually encourage people to save for the long term or discourage it. At first blush, Schiff says, he wonders whether the proposal might discourage small and medium-sized employers from maintaining qualified plans.
Second, he says, since the proposal does away with traditional individual retirement accounts, which are funded with pretax dollars, the proposal might actually discourage some individuals from retirement savings. Brian H. Graff, executive director of the American Society of Pension Actuaries, Arlington, Va., believes the plan would particularly harm employees of small businesses. He says the substantial expansion of tax-favored savings opportunities on an individual basis would eliminate the incentive for many small business owners to incur the cost and administrative burdens of establishing a retirement plan. “It is an understatement to suggest that the impact of these proposals on small business retirement plan coverage will be anything less than devastating,” Graff says. He says that for the average small business employee, the proposal changes the “three-legged stool” of retirement savings (pensions, individual savings and Social Security), into a “pogo stick.” Specifically, the administration wants to change the existing panoply of retirement savings vehicles with three products.
One is a Lifetime Savings Account in which all Americans, regardless of income, could contribute up to $7,500 per year, earn tax-free interest and withdraw their money at any time for any reason without any tax consequences. The $7,500 limit would be indexed for inflation.