Congress aims at less affluent in its retirement savings efforts

WASHINGTON — Congress is beginning to refocus its retirement savings policy-making efforts on finding ways to help Americans of modest means save for retirement, as well as trying to help people get better returns from their retirement savings plans.
But retirement policy experts say that some of the plans being eyed could lead to less use of popular 401(k) plans.
One of the most sweeping proposals is being advanced by Sen. Jeff Sessions, R-Ala., who is trying to enlist support for his “portable lifelong universal savings accounts” idea, which hasn’t yet been introduced as legislation.
Under that proposal, the government would contribute $1,000 into personal PLUS accounts at birth for all U.S. citizens born after this year.
The money would be invested in a limited number of investment funds modeled after the Thrift Savings Plan for federal employees, which has six low-cost investment accounts. Parents and grandparents could contribute up to $5,000 annually to the accounts.

“What we know pretty certainly is that tinkering with the tax code does not create the savings that we need,” Mr. Sessions said.
“We’ve had all these plans, but for the last two years, savings has been below zero,” he said. “Tragically, the people that are saving the least are the middle-class and lower-middle-class workers.”
Even without additional contributions, Mr. Sessions said, PLUS accounts would be worth between $50,000 and $100,000 at retirement for newborns who start in the plan next year, a notable improvement over the less than $25,000 that most Americans currently have saved for retirement.
Bang for their buck
His proposal, as well as bipartisan legislation now being introduced that would set up automatic- enrollment individual retirement accounts at companies that have no other pension plans, are aimed at modest-means Americans who aren’t saving for retirement.
Congress increasingly will be looking for ways to get more bang for the tax deductions it grants for retirement savings until the day the Social Security system starts paying out more money than it takes in from payroll taxes, said Dallas Salisbury, president and chief executive of the Employee Benefit Research Institute. The Washington- based organization researches employee benefit issues.
“You’re going to see all of the [tax-advantaged retirement] plans come under new scrutiny,” Mr. Salisbury said.
He and other retirement policy experts question the effect that Mr. Sessions’ proposal, as well as the auto-enrollment IRA legislation, would have on 401(k)s.
Mr. Sessions’ proposal “might pull a lot of lower-income participants out of unmatched ‘k’ plans, which could, in turn, cause discrimination problems and lead to the termination of plans,” Mr. Salisbury said. Under 401(k) regulations, a certain portion of a company’s lower-income workers must participate in order to receive the tax benefits of the plans.
The auto-enrollment IRA bill was introduced in the Senate this month by Sens. Jeff Bingaman,
D-N.M., and Gordon Smith, R-Ore., and it is scheduled to be introduced in the House this week by Reps. Richard Neal, D-Mass., and Phil English, R-Pa. Hearings are likely to be held on the measure this spring.
“If small employers have to do a payroll deduction IRA in the absence of any other plan, what will be their willingness to spon-sor a qualified plan?” asked
James Delaplane, a partner with Davis & Harman LLP law firm in Washington.
But Beth Blecker, chief executive of Eastern Planning Inc. in Nanuet, N.Y., said of Mr. Sessions’ plan: “It has to be a good idea.”
Since people invariably procrastinate about saving for retirement, the plan would help everyone save, including people of modest means, she said.
Ms. Blecker rejected the idea that such a plan would lead to less use of 401(k)s. “The more you save, the more you save,” she said.
Adoption of auto-enrollment IRAs could lead more business owners to move to 401(k) plans eventually, said Mark Iwry, principal of The Retirement Security Project, a Washington group that is sponsored by The Pew Charitable Trusts in Philadelphia, and Georgetown University’s Public Policy Institute and The Brookings Institution, both in Washington. He is one of the authors of the auto-enrollment IRA proposal.
Savings in IRAs are limited to $4,000 a year or $5,000 a year for people age 50 and over, Mr. Iwry noted. By contrast, savings in 401(k)s max out at $15,500 a year or $20,500 for older workers.
“That’s a very big incentive for anyone who wants to save more than $4,000 or $5,000,” Mr. Iwry said.
In addition to Mr. Sessions’ PLUS proposal and the auto-
enrollment IRA bill, House Education and Labor Committee Chairman George Miller, D-Calif., is prepar- ing legislation to improve disclosures about fees charged for 401(k) plans. He has questioned whether investment options in 401(k) plans should be limited to index-type funds as a way to keep fees low (InvestmentNews, March 12).
Mr. Miller may have trouble getting support for limiting 401(k) options, even from his own party.
“We’ve moved in the direction of more expertise,” by making it easier to provide investment advice to 401(k) participants, said Mr. Neal, a Democrat who is chairman of the House Ways and Means subcommittee on select revenue measures. “I’m comfortable with that concept as long as [financial advisers] explain that they may well be promoting their own product — as long as that disclosure occurs,” he said, indicating that limiting investment options is unnecessary.