The second proposal creates
Employer Retirement Savings Accounts (ERSAs) to promote employer sponsored retirement plans by consolidating 401(k), SIMPLE 401(k), 403(b), and 457 employer-based defined contribution accounts into a single type of plan that can be more easily established by any employer.Retirement Savings Accounts
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Retirement Savings Accounts (RSAs) would be used only to build up retirement savings.·
Up to $7,500 (in addition to amounts contributed to an LSA) could be contributed to an RSA annually.·
While contributions to RSAs would not be deductible, earnings would accumulate tax-free and distributions after age 58 (or death or disability) would be tax-free.·
Existing Roth IRAs would be unaffected. Existing traditional and nondeductible IRAs could be converted into RSAs; those not converted to RSAs could not accept any new contributions (other than rollover contributions); no one would be required to convert.·
As with LSAs, the $7,500 contribution limit would be indexed for inflation in future years.The White House says RSAs would be good for average Americans because:
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More Americans will save for retirement. Repeal of the income limits will eliminate the confusion and complexity associated with determining eligibility and will encourage participation.·
It makes saving for retirement simple and easy. Individuals will not be required to make minimum distributions from the accounts during their lifetime, simplifying financial planning in retirement.·
More will be set aside for retirement. Current IRAs allow for withdrawals for many non-retirement purposes. Each withdrawal from an IRA potentially reduces retirement funds. Having a separate retirement account will help individuals plan for both non-retirement and retirement needs.Employer Retirement Savings Accounts
There would be multiple tax-preferred, employer-based retirement savings accounts with similar goals but different rules regulating eligibility, contribution limits, tax treatment, and withdrawal restrictions. The Bush budget proposal would consolidate 401(k), thrift, 403(b), and governmental 457 plans as well as SARSEPs and SIMPLE IRAs into a simpler account, Employer Retirement Savings Accounts (ERSAs), which could be sponsored by any employer.
Assistant Secretary Olson stated, "The overwhelming complexity of current rules imposes substantial burdens on employers and workers. Because employer sponsorship of a retirement plan is voluntary, this complexity discourages many employers from offering any plan at all. This is especially true of small employers who together employ about 4 out of every 10 American workers. It's one important reason why only 50% of working Americans have any pension plan at all. I'm confident that simpler rules will encourage employers to create new plans for their employees because creating a qualified plan will be much easier."
The White House says ERSAs would be good for workers because:
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Coverage and participation will increase because firms that are not currently offering retirement plans because of the complexity and compliance costs will be more likely to offer such plans under the proposal.·
More small businesses will be able to cover more workers. The reduction in red tape will remove a barrier that discourages small business owners from offering this benefit to their employees. Small businesses employ about two-fifths of American workers, but the pension coverage rate has consistently remained under 25 percent among employees of small firms.·
Employees will benefit because firms currently offering employer plans will have reduced compliance costs.