Industry Leaders Show Support For Senate Panel's COLI Draft

"As an advocate for change, I encourage younger families to begin saving more now, and as a legislator, I recommit myself to working to reform the nations tax laws to encourage more savings," he says.

John Goodman, president of the National Center for Policy Analysis, agrees.

"The current tax law has a bias against saving and investment," he says in testimony before the committee. "That bias retards capital formation and reduces productivity, employment and wages."

Goodman says that, in general, income spent on consumption is taxed once, while income that is saved is taxed as many as 4 times.

Currently, he adds, some 61% of all workers between ages 24 and 64 have no retirement savings accounts.

Among those who do have retirement savings accounts, the median balance is less than $25,000.

"To put that in perspective, $25,000 at retirement will provide a pension annuity of little more than $200 a month," Goodman says.

One answer, he says, is to create a new type of 401(k) plan, which would have several features. First, he says, employers would automatically enroll all employees who meet the eligibility requirements unless the employees opt out.

Second, he says, the initial minimum contribution rate should be 4% to 6% unless the employee specifically opts for a smaller amount.

Third, Goodman says, employers would have to include in participants investment options premixed efficient portfoliosones that give the maximum rate of returns at different risk levelsor a professional directed investment option or both.

Companies, he adds, should be encouraged, but not required, to provide employees who choose to manage their own accounts with access to investment advice.

The new plans also would prohibit cashout by the plan or employee following termination of employment but before retirement, death or disability, Goodman says.

Instead, he explains, the account could be rolled over into a similar qualified plan or remain in the previous employers plan if the new employer does not have a qualified plan.

Goodman adds that to encourage employers to establish such plans, they should only have to meet the most basic coverage and nondiscrimination requirements.

In addition, he says, plan sponsors should receive legislative protection which exempts them from class-action civil suits and similar actions alleging breach of fiduciary standards.

"We would expect industry service providers to respond quickly to such a program," Goodman says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 30, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.