| Outlook on Administration's Pension Activities for 2005
William Bortz, J.D., Ph.D.
A Treasury official today reviewed the Administration's proposed changes to retirement account options available to individuals and employers, and discussed ongoing projects to revise other regulations, such as the project to update the Section 415 rules.
Bill Bortz began his presentation by reviewing the general proposals for three new types of retirement accounts:
• retirement savings accounts (RSAs),
• lifetime savings accounts (LSAs), and
• employer retirement savings accounts (ERSAs).
These new concepts were first unveiled in President Bush's proposed FY 2004 budget, and were discussed in detail at NCPERS' 2004 Legislative Conference. The Administration has said it believes it is offering a simpler, easier way for employees to participate in a retirement plan, and for employers to offer more flexible, less complicated pension options.
LSAs could be used for any type of savings, 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.
Should Congress adopt these new retirement plans, Bortz was asked if providers would have to maintain existing plans, as well as these new ones—requiring a provider to maintain as many as four plans in some locations. Bortz said he expects Congress to consider the possibility of combining accounts so that the resulting legislation would offer pension simplification—one of the Administration's primary reasons for introducing the new retirement programs.
Bortz, who also works on several regulatory issues, also reported that the project to update the Internal Revenue Code Section 415 regulations is underway. By June the IRS expects to submit a document for public review.
The IRS is also reviewing rules for phased retirements. Current regulations discourage individuals who have retired from re-joining the workforce, even on a part-time basis. Under revised rules the employers, for example, could hire experienced individuals who are subject-matter experts, either on a full- or part-time basis.
William Bortz is the associate benefits tax counsel for the Treasury Department. Before joining in 1995, he was in private legal practice for nearly three decades, focusing on employee benefits issues
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