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White House Brings Back LSAs

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Life industry groups are criticizing the Bush administration for releasing a fiscal year 2008 budget proposal that supports creation of lifetime savings accounts but does not support creation of a tax advantage for an annuity for life.

To strengthen Americans’ retirement security, the government should give taxpayers new incentives to buy annuities and individual long term care insurance, and to buy long term care insurance through the worksite, according to Frank Keating, president of the American Council of Life Insurers, Washington.

Instead, the Bush administration has resurrected past proposals to create LSAs, retirement savings accounts and employee retirement savings accounts.

The LSA, RSA and ERSA programs would hurt life insurance and annuity sales, and they would encourage taxpayers to save for short-term goals, such as buying homes, rather than spurring taxpayers to lock away savings for retirement, Keating predicts.

The LSA, RSA and ERSA “proposals do not represent wise ways to address our nation’s retirement security crisis,” Keating says.

The National Association for Insurance and Financial Advisors, Falls Church, Va., also is disappointed to see the Bush administration include an LSA provision in the budget, NAIFA representative Jim Edwards says.

“NAIFA said it last year and the year before that LSAs are a prescription for lifetime spending instead of lifetime savings,” Edwards says. “There is little or no incentive to save for the long term with LSAs… Annuities and permanent life insurance provide the financial security needed for the older aged, and their families and businesses. LSAs do not.”

During a period when “millions of Americans are preparing inadequately for retirement, providing more disincentives to long-term savings represents a misguided policy,” Keating says.

The RSA, an individual plan, would combine various types of currently available savings vehicles.

In theory, RSAs could help ordinary Americans save more for retirement.

In practice, RSAs should sharply reduce employer-sponsored retirement benefits programs, Keating says.

“That is because small business owners in particular would have less incentive to sponsor workplace savings plans if they could save individually through an RSA,” Keating says.

The ERSA proposal reflects a lack of recognition of the differences between various types of employer-provided retirement savings arrangements, Keating adds.

“By consolidating all types of plans into one, ERSAs would discourage many employers from sponsoring plans for their employees,” he says.

The ACLI believes the ERSA proposal would pose a particularly grave threat to the 403(b) plans and other plans now offered to public school teachers, state and local government workers, and employees of charitable organizations, Keating says.


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