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President Clinton is likely to promote
Universal Savings Accounts (USA) as a way to encourage low-wage workers to save for
retirement when he delivers his State of the Union address Jan. 27.
The USA program, first unveiled in last
year's address, may be scaled down this year because Clinton is trying to juggle a variety
of other priorities, including saving Social Security, observers say.
"We are clearly anticipating the
return of the USA. We expect that it will be scaled back," said James Delaplane, vice
president, retirement policy, with the Association of Private Pension and Welfare Plans.
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"We are clearly anticipating
the return of the USA. We expect that it will be scaled back." |
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James Delaplane
Vice President, Retirement Policy, with the Association of Private Pension and Welfare
Plans. |
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The big retirement-related issue that
Clinton is expected to address in his speech is saving Social Security, which became a
leading political issue last year. In 1999, Clinton found himself with a generous budget
surplus, and proposed directing it toward the Social Security trust fund. Congressional
Republicans proposed their own Social Security fix along with a larger tax cut. But
Congress failed to pass any laws.
Still To Come:
Retirement Saving Details
Clinton is expected to only devote one or
two sentences of his speech to individual retirement saving, but the administration is
expected to make more proposals when it submits its budget to Congress on Feb. 7. One
proposal might be to exclude 401(k) contributions from the calculation used for the earned
income tax credit, observers say.
In terms of private retirement initiatives,
last year Clinton proposed using a projected $500 billion government surplus to pay for
the USAs. The accounts work as follows: workers earning up to $80,000 would get a tax
credit of $300, plus government matching funds on any of their own contributions up to
$350, for a possible maximum of $1,000 a year to deposit into a tax-deferred account.
Workers with higher wages would receive reduced levels of aid.
USAs were included in the tax-cut
legislation Clinton sent to Congress last year. That legislation didn't pass. USAs will be
included in tax cut legislation again this year, a White House spokesman told the
401Kafý. He declined to provide further details of the speech other than to say:
"you can expect the president to propose a tax cut the same size as last year."
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"You can expect the
President to propose a tax cut the same size as last year."
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| - A
White House spokesman. |
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While the White House hasn't revealed exact
details, the amount allocated to USA plans could be smaller than the $250 billion proposed
in 1999, Delaplane said.
In order to keep the USA program within the
new budget, it's likely the administration will lower the income limit for eligibility,
Delaplane said. Also, USA seed money and matching contributions may be reduced, he added.
One reason that the USA plan may be scaled
back is to shift funds from it to pay for changes in the earned income tax credit (EITC).
Currently, if a worker contributes to a 401(k) plan, credit payments are reduced. For that
reason, many low-income workers don't participate in their employer-sponsored retirement
plan. But now, the administration is expected to propose that 401(k) plan contributions
won't lower earned income tax credits. It is hoped that this will encourage more 401(k)
participation by lower-income earners.
White House
Strategy
In addition to providing a report of last
year's activities, the State of the Union address roughly lays out the administration's
legislative expectations for the year. The details of these proposals will be contained
within the proposed budget to be sent to Congress Feb. 7.
To date, the White House has played it
"close to the vest" in terms of releasing speech details. But in the last week
or two it has started floating trial balloons concerning its more controversial programs,
says Danny Devine, director of public relations with the Employee Benefit Research
Institute. To date, few of these have concerned retirement issues.
Plugging
Retirement Fund Leaks
One non-legislative issue the
administration may address in 2000 is trying to stop workers from cashing out their
retirement accounts when they change jobs. Every time a worker switches jobs, he or she
has the option of rolling retirement money into an IRA or other retirement plan. However,
about two-thirds of workers choose a third option -- taking cash -- thereby depleting
their retirement savings.
Policy makers and lobbyists agree that this
means workers are failing to build adequate retirement portfolios. As a result workers may
end up relying on Social Security as a primary source of retirement income.
One way to stem such leakage might be to
increase the restrictions on early withdrawal of retirement money. The complication is
that Americans like having access to their money, Delaplane says. For that reason, it may
be tough for the Clinton administration to come up with a workable compromise.
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