Savings Initiative

Senator Craig Thomas (R-WY) and Rep. Sam Johnson (R-TX) introduced legislation last month calling for the adoption of the Bush Administration’s savings accounts–Lifetime Savings Accounts (LSAs), Retirement Savings Accounts (RSAs), and Employer Retirement Savings Accounts (ERSAs). Bush originally proposed the savings accounts in 2003, and has included the plans in his 2006 budget. Two bills were introduced in 2004 supporting adoption of the savings plans, but neither one passed.

In introducing the latest legislation, called the “SAVE Initiative,” Thomas said, “as Social Security strains under increasing pressure, it’s more important that we recognize that Social Security was never intended to be a sole source of retirement income. We must provide a simpler, more responsive system for Americans to accumulate personal savings for retirement.”

As proposed, RSAs have a $5,000 annual contribution limit without age or income eligibility requirements, non-deductible contributions, and tax-free earnings. LSAs have no minimum distribution rules and can be converted from Coverdell Education Savings Accounts and Qualified Tuition Plans. Qualified distributions for RSAs begin at age 58 or upon death or disability, and IRA plans can be converted to an RSA. ERSAs would have an annual employee salary deferral limit of $15,000 and combine and streamline current rules for 401(k)s, simple 401(k)s, 403(b)s, 457s, SARSEP, or simple IRA accounts. ERSAs are available to all employers.