Magazine article American Banker

Key Senators Prefer 401(k) to IRA Expansion

Magazine article American Banker

Key Senators Prefer 401(k) to IRA Expansion

Article excerpt

WASHINGTON -- An expanded individual retirement account program is one of the banking industry's top priorities, but two key Senators said it makes more sense to focus on 401(k) plans.

Sen. Robert Packwood, R-Ore., chairman of the Senate Finance Committee, said he favors expanding the 401(k) deduction because the employer contribution helps promote use.

"There is tremendous room for the expansion of the 401(k)s," he said. "People making $20,000 are not going to buy an IRA. They can't afford IRAs. They don't have the money. And the deduction-from-their-income savings plans are as good an incentive as you can get for people making under $25,000," he added.

Bankers, however, say the 401(k) option is less attractive than the expanded IRA, which they strongly favor.

"Anything that opens the door to bringing in longer-term money is very important," said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America. "We have a very strong interest in more flexible IRA rules." The IRA, he said, "is much more attractive" than an expanded 401(k).

Of a four-member panel testifying before the Senate Finance Committee last week, only John Skinner, University of Virginia economics professor, and David Wise, Harvard University economics professor, said they favor increasing IRA and 401(k) deductions.

When Sen. Packwood asked which plan would have more impact on the savings rate, however, all four economists said they would rather increase the 401(k) deduction.

"Any plan where people make the decision to save once and stick to it is better," said Lawrence Kotlikoff, a Boston University economics professor. …

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