Life insurers say they will oppose the Bush administration’s efforts to use the 2007 federal budget to create a new system of tax-free saving and investment accounts.
The budget proposal, released today, repeats earlier calls by the Bush administration to create lifetime savings accounts, retirement savings accounts and employee retirement savings accounts. The LSAs, RSAs and ERSAs would replace the many saving and investment vehicles that now qualify for special tax breaks.
Creating the accounts would discourage long-term savings and pension plan maintenance and creation, according to the American Council of Life Insurers, Washington.
The account proposals “do not represent wise ways to address our nation’s retirement security crisis,” ACLI President Frank Keating says in a statement. “As the review of retirement security issues commences in Congress this year, ACLI will advocate for policies that encourage people to save as much as possible in their employer-provided plans and encourage people to lock into a lifetime stream of income that only an annuity can provide.”
But the ACLI says it will support 2007 budget initiatives that would make permanent those parts of the tax code that temporarily increased the amounts workers can save in tax-qualified retirement savings plans.
Another major section of the budget would create new tax breaks for users of health savings accounts. One provision would let employers contribute more to HSAs for employees and dependents with chronic health problems than for other employees, and another provision would let consumers use HSA funds to pay for high-deductible, non-group health coverage.
Here is a look at the savings and investment account proposals:
- LSAs would provide tax-free savings, but insurers say consumers would have too easy of a time using account assets. Because of the lack of restraints on access to funds, these accounts would effectively discourage long-term savings, insurers argue.
- RSAs would consolidate various types of savings vehicles now on the market. The ACLI opposes them because it says small business owners, in particular, would have less incentive to sponsor workplace savings plans if they could save on their own through ERSAs, Keating says.
“Meanwhile, the ERSA proposal reflects a lack of recognition of the real and important differences among various types of employer-provided retirement savings arrangements,” Keating says. “The U.S. has a diverse economy, and a one-size-fits-all approach does not provide the flexibility employers need to offer the type of savings plans that make the most sense for their workers.”
The ERSA proposal would be particularly bad for the retirement plans offered to public school teachers, state and local government workers, and employees of charitable organizations, Keating says.
A copy of Analytical Perspectives, a government report that explains the proposed federal budget, is on the Web at Document Link