The Bush Administration's fiscal 2005 budget, released today, again proposes the Lifetime, Retirement and Employer Retirement savings accounts, at a cost of $7.6 billion for 10 years. Individuals would be able to contribute up to $5,000 in after-tax savings to either an LSA or RSA, down from $7,500 proposed last year, and investment earnings and distributions would be tax-free. RSAs would replace traditional and Roth individual retirement accounts, while ERSAs would replace 401(k), 403(b) and 457 plans and SIMPLE plans.
The budget also includes a cash-balance proposal that would require conversions from traditional plans to provide participants with benefits equal to or better than those received under the previous plan, with violators facing a 100% penalty on the shortfall. Companies would also not be able to impose wearaways.
The administration proposed that cash balance plans are not discriminatory if they provide older workers with benefits as generous as those given to younger workers, and it would eliminate the "whipsaw" effect, in which some employees get more than they have accrued in their hypothetical accounts. The proposal does not deal with the 300-plus companies currently awaiting IRS approval of their cash balance plans.