Saving

Analyses of the private pension system typically focus on such issues as how to improve overage or encourage saving or prevent tax abuse or generate retirement income more equitably. Those issues are important, but the thesis of this paper is that more attention needs to be paid to the structure in which they are embedded. It examines the nuts-and-bolts of the private pension system, that is, the plans that comprise it and the rules that govern them. The architecture and machinery of the private pension system have much to teach us about directions for reform.

A major new proposal would largely continue in the same direction as EGTRRA's retirement savings provisions. On April 11, 2003, Representatives Portman and Cardin introduced "Portman- Cardin III." Although an official revenue estimate is This column examines the new Portman-Cardin proposals in the context of the pension system, the sluggish economy, and the deteriorating long-term budget outlook.

This paper provides an overview of the U.S. system of pensions and tax-preferred saving, examines the effects of current policies, and evaluates proposals for reform. In light of lengthening life spans, earlier retirement, and projected financial shortfalls in Social Security and Medicare, the financial status of the elderly in the future will depend heavily on private saving for retirement. The central goal of the private pension system should be to encourage or provide adequate and secure retirement income in a cost-efficient and equitable manner.

In its fiscal year 2004 budget, the Bush administration proposes to create a new set of tax-preferred accounts that would expand opportunities and consolidate rules for tax-advantaged saving. The initial reaction to the proposal was not particularly positive. Despite its uncertain prospects, the proposal is worth considering in detail because it would dramatically alter the tax treatment of saving, via the creation of Lifetime Saving Accounts (LSAs), individual Retirement Saving Accounts (RSAs), and Employer Retirement Saving Accounts (ERSAs).

The Enron debacle had potential implications in three areas of tax policy: tax-favored retirement plans, stock options, and differences in book versus tax accounting. The most important issue relates to the increasing riskiness of retirement plans that (1) can pay in a lump sum amount, (2) are of the defined contribution variety, and (3) may be excessively concentrated in employer stock. Proposals to remedy this issue even in a limited way may be unsuccessful if they do not address the especially favorable tax treatment of employee stock ownership plans (ESOPs).

The paper describes the huge loss of skills and experience that will accompany the retirement of the baby boom generation. The problem can be mitigated by making longer work more attractive through offers of part-time employment and longer vacations. Unfortunately, a number of private practices and public policies have evolved over the years that encourage early retirement and make it challenging for employers and employees to negotiate flexible, partial retirement arrangements.

The United States is often said to maintain a classical tax system, under which corporate profits are subject to double taxation, once at the corporate level when they are earned, and again at the individual level when they are paid out as dividends. The Bush administration is reportedly considering corporate tax reform options in part because of concerns about double taxation. Dividends are not taxed twice if they are paid to nonprofit institutions or foundations; federal, state or local governments; public or private pension funds; and 401(k) plans or Individual Retirement Accounts.

Congress must be careful in deciding whether or not to subject stock options to Social Security and unemployment tax. There is certainly a case to be made for not doing so, but Congress could find itself in the funny position of offering special employment tax treatment to employees who have stock options while denying it to the same degree to those who buy company stock through a section 401(k) plan.

This article examines when it is appropriate to adjust expected returns upward.

This brief looks at tax shelters and tax arbitrage, and how they are similar to and different from 1980s tax shelters.