Industry Lines Up Against Savings Proposal In The Bush Budget
The life insurance industry continues to oppose the Bush administrations proposal to establish Lifetime Savings Accounts, despite the contribution limit being reduced to $5,000.
Frank Keating, president of the American Council of Life Insurers, says that the average citizen is in a position to put between $1,000 and $2,000 annually in a savings vehicle.
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So whether the contribution limit for an LSA is $5,000 or $7,500, as it was in the original design, most people will move their savings from long term to short term, Keating says.
He says that while ACLI supports many aspects of the Bush administration fiscal year 2005 budget relating to retirement savings, there is a disagreement on LSAs.
Keating says he hopes to use the budget deliberations to launch a discussion on the need for long-term savings.
Indeed, Keating says, ACLI would like to see the administration establish a national commission on long-term savings.
He says he would like the discussion to include annuitization, adding that encouraging long-term savings and annuitization of retirement savings should be a healthy part of the debate.
David Woods, CEO of the National Association of Insurance and Financial Advisors, Falls Church, Va., says NAIFA also opposes LSAs.
“In our opinion, LSAs are very bad public policy that will actually be harmful to long-term savings, and, of course, they will wipe out the market for most annuities and permanent life insurance,” he says.
An LSA would allow all individuals to contribute up to $5,000 annually to a savings account, earn tax-free interest and withdraw the money at any time for any purpose without penalty.
In addition to LSAs, the administration is proposing to create a simplified retirement savings vehicle called a Retirement Savings Account.
RSAs would, in effect, replace both Roth and traditional Individual Retirement Accounts.
Individuals could contribute up to $5,000 annually into an RSA and earn tax-free interest. Distributions from an RSA would be tax free after age 58 or in the event of death or disability.
The administration also is proposing simplifying the rules for employer-based savings plans. In effect, 401(k) and similar plans would be consolidated into a new vehicle called Employee Retirement Savings Accounts, which would have simpler nondiscrimination rules.
Turning to other issues, the administration also is seeking elimination of the current moratorium on issuing guidance on nonqualified deferred compensation plans.