THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Thursday, September 14, 1995 TAG: 9509140007
SECTION: FRONT PAGE: A12 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 52 lines
Present laws governing retirement plans, such as the popular 401(k), are a study in needless complexity. Though the plans are supposed to encourage saving and investment, they put roadblocks in the way. The details are so bedeviling that employers are often discouraged from setting up plans and employees from taking advantage of them.
Both Republicans and Democrats are on record in favor of spurring saving and investment. And there are several nearly identical bills in the congressional hopper that would reform laws governing these plans. Among the proposed changes is a suggestion to get rid of an existing limit on contributions to two different kinds of plans.
The administration seeks to authorize a greatly simplified National Employee Savings Trust that would incorporate features of the IRA and 401(k). The accounts would be available to companies employing 100 or fewer workers. Employees could set aside up to $5,000 a year tax deferred and employer matches would be permitted.
Small companies often find the record-keeping necessary for present plans too costly and time consuming to bother with. For that reason, among others, the smaller the company the less likely it is to participate in such plans. Almost 70 percent of companies employing 1,000 or more have plans, while less than 30 percent of those employing fewer than 50 offer them.
Many of the existing programs involve complex formulas dictating who can contribute how much, often designed to keep well-paid management from sheltering too much income from taxation. But if saving and investment are good, why not encourage as much as possible? Any meaningful reform will seek to streamline plans and do just that.
It is argued that those earning lower wages can save less and that's certainly true, but they may not be low-wage earners forever and more important than how much is saved is the saving habit itself and how long the money is allowed to grow, since money wisely invested compounds.
There are other things Congress must do to spur saving and investment, such as fixing the tax code to provide incentives to save, not disincentives. But making retirement plans easier to use and administer would be progress.
Americans save too little. Encouraging them to save more would be good for the economy and good for them. With the decline of pensions funded and managed by employers, a comfortable retirement will increasingly depend on how much individuals save and how wisely they invest their savings. The proposed reforms would help. by CNB