The Bush administration wants to push Americans into greater self-
reliance in looking after their own needs for their retirement
Social Security would be altered, with a portion of the program
looking like a 401(k), involving individual accounts.
Corporations would find it easier to modify traditional pensions
into retirement plans that are, again, more like 401(k)s. Younger
workers could benefit from enhanced account portability. Older ones
may pay a price in lower benefits.
Individuals would be given new options for tax-sheltered saving.
To supporters, the president's proposals extend long-needed
opportunities to workers in an era when people are used to keeping
an eye on mutual funds from their desktop computers.
"Generally, the trend is away from a pension provided by the
government or companies to one controlled by the individual," says
Andrew Biggs, an analyst at the Cato Institute in Washington.
But to critics, Mr. Bush's plans may fail to encourage greater
savings, while accelerating a trend that has already been
undercutting key goals of traditional pensions: certainty and
Indeed, the prospects for passage in Congress are uncertain, and
some news reports suggest the White House is not putting high
priority on selling the plans.
For years, corporations have been shifting from so-called
"defined-benefit" pensions to 401(k) plans where investments are
chosen by workers and not guaranteed to provide an income stream in
The Bush proposals come as Americans are living longer than ever,
and changing employers often - a trend that has limited the
usefulness of traditional pensions, where benefits rise dramatically
after long years of service at a single firm.
While perhaps least imminent of Bush's proposals, Social Security
reform is the most controversial. In last month's State of the Union
address, Bush renewed his call for partial privatization of the
program. Perhaps 2 percent of an individual's pay (or about $1 in
every $6 that is now taxed for Social Security) could be invested in
a personal account, with stocks among the investment choices.
A second, and newer, Bush proposal would create two new types of
savings and retirement accounts for individuals. Both "retirement
savings accounts" and "lifetime savings accounts" - the latter
designed to help people save for needs other than retirement - would
allow contributions of up to $7,500 per year. Contributions would
not be tax-deductible, but the money could grow and be tapped tax-
Critics worry that these savings vehicles will encourage small
employers to drop pension plans for their employees. Workers would
be left to try to save money themselves for retirement - a task
especially difficult for low-income employees. Meanwhile, they say a
manager with a spouse and two children could put aside as much as
$45,000 a year into the Bush tax-advantaged plans.
Under present rules, an employer wishing to set aside substantial
money for retirement, also has to provide a pension system for