ERSAs on Comeback Trail

October 30, 2003 ( - Plan sponsors who thought the Bush Administration's retirement savings proposals were DOA are in for a surprise next year.

By Nevin E. Adams | October 30, 2003
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Speaking at the annual American Society of Pension Actuaries Conference (ASPA) inWashington , D.C. , Bill Sweetnam, Treasury Benefits Tax Counsel, confirmed that the Bush Administration plans to push for its new breed of retirement savings programs in next year's budget.   The proposal, outlined last January (see  ERSAs Bear Major Changes for Plan Sponsors ), includes the Employment Retirement Savings Account (ERSA), which would replace employer-sponsored deferral programs, including 401(k)s, 403(b) and 457, SIMPLE and SARSEP programs; the Retirement Savings Account (RSA), designed to replace the current IRA; and the Lifetime Savings Account (LSA), designed as an after-tax, tax-exempt savings account, much like today's Roth IRA.


Sweetnam told attendees that "These proposals are very popular in the administration. You'll see them again in the next year's budget proposals."   He explained the Administration's goals as two-fold:   simplification of the current system, and expanding current savings opportunities, particularly for smaller businesses, and the workers they employ.

Calculus Impact

He did acknowledge input on the original proposals from a number of sources (including ASPA), noting that "There's a financial calculus that a small business owner goes through in deciding to offer a retirement plan."   Critics of the proposal have argued that it would provide incentives for small business owners to take advantage of the proposed new Lifetime Savings Accounts (LSA) for their retirement savings, rather than undertake the work, risk and expense of establishing a retirement program in their workplace (see  Industry Groups Fret About Impact of Bush Proposal ).  

Sweetnam acknowledged those concerns, and while he admitted that the proposal could affect that calculus, he cautioned that "every change in the tax system" has an impact.   He also said the Administration's sense was that this impact would only happen at the "very" small plan level.   Most employers would continue to view offering a workplace retirement plan as necessary to remain an "employer of choice," according to Sweetnam.

For those concerned about the potential impact of the proposals introduced this year, Sweetnam noted that the 2004 version will "look slightly different."   Noting that Treasury had met with various interest groups over the past year, he said "you will see some changes that reflect the comments received."