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Administration Proposals to Change Retirement and Savings Programs
William Sweetnam
 Benefits Tax Counsel, Department of the Treasury
The Bush Administration has responded to critics of its proposal for new retirement savings programs, according to Treasury’s Benefits Tax Counsel Bill Sweetnam. A frequent participant in NCPERS’s legislative conferences, Sweetnam has several years experience working on pension and health care issues in the private sector, on Capitol Hill and with the Treasury Department.
Sweetnam first reviewed changes to the proposed Lifetime Savings Accounts (LSAs) and Retirement Savings Accounts (RSAs), which were recently unveiled in President Bush’s proposed FY 2005 budget. The two most significant changes were reducing the maximum annual contribution from $7,500 to $5,000 (indexed for inflation), and eliminating transfers between family members.
Regarding Employer Retirement Savings Accounts (ERSAs), Sweetnam said he believes the Administration is offering a simpler, easier way for employees to participate in a retirement plan. The proposal would eliminate existing employer plans (such as 401(k), 403(b) and 457 deferred compensation plans), and replace them with the ERSA. The nondiscrimination exemption for public sector plans would still apply.
“Savings programs must be promoted to be successful, and have features that are appealing to individuals in every economic sector,” Sweetnam said, and that is what Treasury believes it has achieved with these revisions.
Sweetnam also discussed health savings accounts (HSAs), which he said many state and local governments are looking at as a way to help those who find health insurance unaffordable. HSAs were included in P.L. 108-173, the Medicare Prescription Drug law approved in 2003. They allow individuals to contribute money to a savings accounts and withdraw it tax free to cover health care expenses. Contributions are allowed only for those enrolled in high deductible health plans.
Finally, Sweetnam reported that Treasury would publish new 401(k) and 403(b) regulations in the coming months. He also discussed some of the changes Treasury anticipates, including minimum distribution regulations and phased retirement.
Last year NCPERS was among several groups expressing concerns about the Administration’s retirement plan proposals because of the impact they would have on public sector employees and retirees.
Following is a summary of the revised Bush Administration proposals for new savings programs:
LSAs could be used for any type of saving, including money that could be used for education, a new home, health care needs or a new business. The maximum annual contribution would be $5,000 (indexed for inflation). Their key feature is that contributions would not be tax deductible; earnings would accumulate tax-free, as would distributions.
RSAs could be used only for retirement saving. The maximum annual contribution would be $5,000 (indexed for inflation). Their key feature is that contributions would not be tax deductible; earnings and distributions after age 58 (or upon death or disability) would be tax free. All traditional IRAs and Roth IRAs would be rolled into the RSA.
ERSAs would consolidate 401(k), 403(b) and governmental 457 plans, as well as SARSEPs and Simple IRAs into a single employer-based retirement savings account. ERSAs would follow rules similar to those for 401(k) plans, but with some changes to simplify the definition of compensation and the minimum coverage requirement.
Sweetnam’s work involves all aspects of employee benefits taxation, including pensions, health care and executive compensation. Before joining the Treasury Department, Sweetnam was tax counsel on the majority staff of the U.S. Senate Committee on Finance, under the chairmanship of the late Sen. William V. Roth of Delaware.
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