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Retirement Planning > Saving for Retirement

ACLI President Calls For Long-Term Savings Incentives

By Steven Brostoff

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NU Online News Service, Jan. 20, 2004, 5:43 p.m. EST, Washington – The United States should establish a presidential commission on the issue of long-term savings.[@@]

The country also should consider a mandate that would require individuals to devote a portion of their salaries to savings.

Frank Keating, president of the American Council of Life Insurers, made those proposals today at the National Press Club. He spoke just hours before President Bush will deliver his State of the Union address. Many are expecting the president to use the address as an occasion to promote lifetime savings accounts.

Keating emphasized that his views on mandated savings are his own and not necessarily those of the ACLI. But he predicts that the average U.S. savings rate, about 2% of income, will not permit most retirees to enjoy the standard of living they expect.

Other countries already require their citizens to save for their own retirement, and savings rates in much of Europe and East Asia range from 10% to 20% of income, Keating said.

The president’s LSA proposal would let individuals place money in accounts that earn interest tax-free and withdraw money from those accounts at any time, for any purpose, without penalty.

Keating said he appreciates the president’s interest in savings. But the LSA proposal is not good public policy, because the incentives should encourage long-term savings, Keating argued.

Keating called LSAs “overnight spending accounts.” If the government provides the same incentives for short-term savings as it does for long-term savings, people will put their money in short-term accounts, Keating said.

Those who think that individuals will behave differently, he said, “simply do not understand human nature.”

The reality, he said, is that people who put money in an overnight spending account will spend it.

Moreover, Keating said, LSAs could hurt employer-based pension plans.

Under the law, he noted, qualified pension plans must cover workers at all wage levels. If LSAs are enacted and workers begin to move money out of long-term savings vehicles, that could lead to employment-based plans becoming disqualified, Keating said.

“The LSA concept is not a good one for employer savings plans,” Keating said.

Keating said that long-term savings are vital for the nation as well as for the individual. He pointed out that it is long-term savings that allow the nation to invest in infrastructure.

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