NU Online News Service, Jan. 28, 2004, 11:28 a.m. EST, Washington – Congress should make federal tax laws friendlier to retirement savings.[@@]
Sen. Larry Craig, R-Idaho, chairman of the Senate Special Committee on Aging, made that plea at a recent committee hearing on retirement savings.
“A recent report form the Department of Commerce shows that the personal saving rate has declined from 7.7% in 1992 to 2.3% in 2002,” Craig said. “At a time when savings should be going up, we see a dramatic decline.”
Craig said he will work to remedy the situation.
“As an advocate for change, I encourage younger families to begin saving more now, and as a legislator, I recommit myself to working to reform the nation’s tax laws to encourage more savings,” he said.
John Goodman, president of the National Center for Policy Analysis, Washington, agreed on the importance of changing federal tax laws.
“The current tax law has a bias against saving and investment,” he said in testimony before the committee. “That bias retards capital formation and reduces productivity, employment and wages.”
One answer, he said, is to create a new type of 401(k) plan.
This new type of plan would have several features, Goodman said. First, he said, employers would automatically enroll all employees who meet the eligibility requirements unless the employees opt out.
Second, he said, the initial minimum contribution rate should be 4% to 6% unless the employee specifically opts for a smaller amount.
Third, Goodman said, employers would have to include in participants’ investment options “premixed efficient portfolios”?portfolios designed to give the maximum rate of returns at different risk levels?or a professional-directed investment option, or both.
Companies, he added, should be encouraged, but not required, to provide employees who choose to manage their own accounts with access to investment advice.
The new plans also would prohibit cashouts by the plan or employee following termination of employment but before retirement, death or disability, Goodman said.
Instead, he said, the account could be rolled over into a similar qualified plan or remain in the previous employer’s plan if the new employer does not have a qualified plan.