ASPA Offers Support to Retirement Plan Proposals

February 25, 2004 (— Orlando, Florida - Although Bush's revised retirement plan proposals have earned the support of the American Society of Pension Actuaries (ASPA), plan sponsors might want to keep an eye out for another pension reform measure.

>At the recent ASPA 401(k) Sales Summit in Orlando, Florida, ASPA Executive Director Brian Graff reiterated that ASPA no longer opposes Bush’s revised proposals, adding that ASPA supports any “proposals that promote savings and encourage small businesses to offer retirement plans.”   The key factors in ASPA’s decision to withdraw its opposition were the reduction in contribution limits, which went from $7,500 to $5,000 and eliminated the family transfer provision, and the inclusion of cross-testing.   Graff said that “tens of thousands of new small business plans exist because of cross-testing,” and that therefore, ASPA was very concerned that the Treasury include that in the proposal (see  ERSA Redux “Better”, But Doubts Linger They’re Back: Bush Reintroduces ERSAs, RSAs, and LSAs ERSAs on Comeback Trail ).

>The proposals still do not include the SAVER’s credit, something which ASPA believes strongly in, and Graff told , “if Bush’s proposals were moving through Congress, we’d be pushing to add the SAVER’s credit.”  However, there is an idea, soon to be put forth to Congress by Representative Ben Cardin (D-Maryland) and Representative Rob Portman (R – Ohio) that Graff discussed at length.   The Portman/Cardin Savings Proposal will have more support from ASPA once introduced, and Graff called them the “light” version of the Bush proposals.  

Portman/Cardin Proposal

>The pending Portman/Cardin proposal does not include reference to the Lifetime Savings Account (LSA), though it retains the Retirement Savings Account (RSA) as defined in the Administration’s revised proposal and adds a catch-up provision, which could provide an annual deferral limit of as much as $26,000.  Graff also said that because after tax investments produce more income later on, ASPA supports the concept of the RSA.   The Portman/Cardin proposal addresses ERSAs, but does not introduce that name; rather, instead of replacing existing 401(k), 403(b), governmental 457, SIMPLE, and grand-fathered SARSEP plans with a single plan, the proposal would maintain the existing forms of plans while simplifying some of the nondiscrimination rules in the Administration proposal and increasing plan portability, according to Graff.

>Also incorporated in the Portman/Cardin proposal is a revised version of the SAVER’s credit, designed to increase the amount of working Americans participating in retirement plans.   Instead of offering a tax credit the proposal creates a government matching program, in which the Treasury would take the value of the credit and deposit it, according to recipients’ instructions, into an RSA or 401(k) account.  For smaller match amounts, the match would be put into a new Treasury “R” bond, according to Graff.  Under that proposal, the match would be a 50% match on contributions up to $2,000, phased out for couples making up to $60,000 in adjusted gross income, Graff said. Additionally, in order to make the match more appealing to employers, any resulting government match to lower income workers would be counted toward satisfying the nondiscrimination and top heavy tests.   The estimated cost of the expanded SAVERs match program is in the range of $30-$40 billion over 10 years, Graff said, though that cost will allow it to probably cover 60% of American households.

>Bruce Ashton, current president of ASPA and a partner of the law firm Reish Luftman Reicher & Cohen, specializing in employee benefits, said that ASPA is most concerned about making sure there is adequate pension coverage for Americans.  Ashton told that ASPA expects that the saver's match should increase workers ability to save, allowing them to double up savings.

>Employer support clearly makes a difference in employer savings behaviors.  Graff cited a EBRI statistic on 1998 participation rates which found that among workers making $30,000-$50,000 a year, more than three-quarters (77.9%) of those covered by an employer plan participated, compared with only 7.1% of those not covered by an employer plan who saved in an IRA.   This shows how important it is to ensure that moderate income workers have a plan offered to them, and the Portman/Cardin proposal creates a way for employers to sell it to workers, Graff said.   Because the proposal offers a match for employees and gives the employers the incentive of using the credit for testing purposes, it is a win-win situation, he added.

>Steve Rosen, president-elect of ASPA and an independent consulting actuary specializing in the design and implementation of qualified retirement plans, said that generally 401(k)s are somewhat of a mystery for lower income workers, who don't understand how they work.   However, Rosen said what is understood is the power in the match and that there exists "significant momentum when lower income workers see increase visible in account."

>Graff conceded that both proposals involve major policy changes, and although both proposals will be introduced as bills within the next month, Graff said he doesn't see any of it getting to markup stage this year. Right now "you've got ingredients to make policy soup," said Graff, citing the bipartisan Portman/Cardin proposal which includes aspects likely to appeal to both democrats and republicans.  

>However, if Bush is reelected, Graff said some sort of package will definitely be introduced in 2005 or 2006.   That time, however, provides ASPA and other groups and individuals with time in which to get involved in the controversy and urge their Congressmen to take action.   With Portman's involvement, the White House should consider the match program, Graff said, adding that reaching success with these proposals is "all about balance."