Rumors of ERSA "death" appear
to be exaggerated
You wouldn't know it to look at me (at least I don't
think you would), but I've always had a certain fascination
with horror filmsand George A Romero's "Night of the
Living Dead" has given me nightmares ever since I was a
little kid (which, you may be able to tell from the nearby
photo, has now been a few years).
For those of you not familiar with the plot line of that
cinematic classic, one day, for reasons never fully
explained, the recently deceased come back to life as
stiff, lifeless zombies who have as their sole purpose in
life turning the rest of us into "lunch." There are ways to
stop them, of coursebut perhaps the most unnerving aspect
is their relentless pursuit of their "prey" regardless of
the mayhem imposed on them.
In recent days, I have heard from a number of sources
about another kind of "resurrection"word that a proposal,
put forth by the Treasury Department earlier this year and
considered dead by many, is, in fact, being readied for a
reintroduction. I'm speaking of the so-called "three
sisters": Employer Retirement Savings Accounts (ERSAs),
Retirement Savings Accounts (RSAs), and Lifetime Savings
Accounts (LSAs). That's right, word out of Washington is
that they will be in next year's budget.
The original proposal, ostensibly designed to simplify
many of the complicated rules and, in the process,
encourage small businesses to establish such programs,
seemed to those of us who work with small businesses more
likely to produce the opposite result. As I said at the
time, "Somebody confused a program designed to encourage
small business owners to save with one that might actually
encourage small business owners to establish programs where
everyone could save."
The proposals had that result by effectively raising the
limits and broadening the access to IRA-type programsand,
in the process, giving small business owners an incentive
to save for their retirement and their family's security
outside the employer retirement plan structure. The
proposal doesn't preordain that result, of course, but that
is its obvious consequence, IMHO.
Complicated rules and limits surely hinder small
businesses in setting up retirement programs for their
workers, but mostly they are a cause for concern after the
programs are up and running. Those who have never had to
administer a plan have no real appreciation for the work
ahead, and telling them it is easier than it used to be is
hardly a clarion call to start down that path.
Meanwhile, workers, who already don't save enough, and
who struggle with investment choices, will be left to their
own devices. Sure, they may be able to save more in these
new programs on a tax-deferred basis than they are
permitted at present, but will they really? "Regular"
workers are a long way from maxing out their current
contribution limits and, without the framework of an
employer-sponsored benefit, they will miss out on the
potential for a match, and probably pay higher fees to
boot.
I've been struggling to figure out why the Bush
Administration would try to resuscitate this monstrosity
and, to date, I have only been able to come up with three
ideas. First, maybe they genuinely believe that the
proposal will accomplish some goodencourage small
businesses to establish retirement savings accounts, and
ease current administrative burdens. Alternatively, perhaps
they are really just trying to spur the same kind of
individual retirement savings "vigor" that accompanied
1981's liberalization of the individual retirement account
(IRA) contribution limits, and see that as a goal
independent of saving within employer retirement plans. Or
maybe, just maybe, the thinking is that, if everyone
already had his own individual retirement savings account,
it might be all the easier to make the case for privatized
Social Security accounts.
Whatever "their" thinking, plan sponsors need to weigh
in now, and the sooner the better. Let's make sure this
misguided proposal stays deadand buried.
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