WASHINGTON – It's too early to tell yet exactly what final shape President Bush's proposed savings plans will take, but CUNA and NAFCU like what they've seen initially, though neither group is endorsing the plans at this early stage. Ever since Fred Becker took over the helm at NAFCU, savings has been a major focus for NAFCU. At the end of 2001 Becker wrote to President Bush urging him to put more emphasis on the nation's abysmal savings rate, which is about 4%. "NAFCU understands the high priority that your administration has placed on tax cuts, but we ask that you also make lifting the savings rate a national imperative. As you may know, the private savings rate in the United States is at its lowest level in more than 40 years," Becker wrote to the administration. Though NAFCU hasn't taken an official position on Bush's savings plans, there is definitely some optimism at NAFCU. "Savings is a good thing for credit unions. Allowing more people to save more money in a more simplified way, particularly with the stock market gyrations and increased risk of other investments, is always welcome," said NAFCU Economist Jeff Taylor. Only 60% of credit unions offer IRAs. As of third quarter 2002 credit unions had $42.3 billion in IRAs, from some 4.2 million member accounts. One of the chief complaints about today's traditional IRA and to a lesser extent the Roth IRA is that they are too complicated for credit unions to administer, while also being too restrictive in terms of income and age restrictions. IRAs also carry penalties for early withdrawals, another drawback for younger savers who don't want to be locked in with no options to get their money back. Bush's plan calls for a number of changes but proposes two new less stringent IRA-like options: * Lifetime Savings Accounts: The LSA allows investors, regardless of income, to contribute $7,500 each year after taxes and withdraw money for any purpose without gains being taxed. Married couples can contribute $15,000. * Retirement Savings Accounts: The RSA is essentially the same as the Roth IRA in that it is for after-tax dollars and investors can take the money out tax free after retirement. It has the same contribution limits as the LSA. This is a major increase over the Roth IRAs, where investors can only contribute $3,000, ($3,500 for those over 50). Again there is no income restriction, which is different from the current Roth. Of course politics will be politics, says NAFCU Associate Director of Legislative Affairs Dillon Shea, and the savings plans will likely face partisan politicking. "I think it's pretty simple as far as what Republicans and Democrats will say. The Democrats are going to say it's going to make it a lot simpler for wealthy individuals to put money away and people who can't afford to put $7,500 away aren't going to be impacted," said Shea. "Republicans are going to counter and say it's going to simplify the program for people who aren't involved in savings plans. They will talk about the simplicity," he said. CUNA as well has been on the savings kick in recent years, both politically – with its heavy work on the Portman-Cardin bill which increased contribution limits to retirement plans and mandatory withdrawal ages – and educationally with its work with NEFE. "Generally we think that the president's proposal is just the first step of a long process, but we like a lot of the elements," said CUNA SVP of Government Affairs John McKechnie. "Some of the Republicans are supporting some of the concepts, others are talking about areas where they differ with the plan. They're talking about another Portman-Cardin," said McKechnie. McKechnie said CUNA is excited about savings plans that not only make it easier for Americans to save, but also for credit unions to administer. Many credit unions are not involved in retirement plans because of regulatory burdens and their complexity. For additional coverage of Bush's proposed savings plan, see page 20. [email protected]
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